The Daily — Distributions of household economic accounts for income, consumption, saving and wealth of Canadian households, first quarter 2023 (2024)

Released:2023-07-04

Recent increases in the cost of living and declining real estate values had unprecedented impacts on net saving and wealth for more financially vulnerable households in the first quarter, such as those with lower incomes, less wealth, and in younger age groups.

Gap between high- and low-income households widens

Income inequality increased in the first quarter as the gap in the share of disposable income between households in the two highest income quintiles (top40%) and two lowest income quintiles (bottom40%) reached44.7%, up0.2percentage points from the first quarter of2022. Although the income gap increased over the last year, it remained lower than before the COVID-19pandemic, when it averaged45.1% from2010to2019.

Lowest income earners gain from retirement benefits rather than employment and investments

Average wages and salaries for the lowest income earners (bottom20%) grew at a relatively slow pace (+1.0% vs. +4.0% for all households) in the first quarter of2023and self-employment income decreased (-6.7%). At the same time, there were relatively strong gains in net transfer payments (+48.5% for the lowest income earners vs. -18.8% for all households), mainly derived from Old Age Security and Canada Pension Plan/Quebec Pension Plan benefits, as more households in this group transitioned to retirement. In the first quarter of2023,38.8% of the lowest income earners claimed government support as a main source of income, up from34.2% a year earlier. As more of the lowest income households relied on government benefits, their tax payments fell by28.7%, further supporting gains in their disposable income.

Inflationary pressures and increasing interest rates had a negative impact on disposable income for the lowest income earners. Along with increases in the Bank of Canada's policy interest rate, the lowest income earners reduced their average net investment income in the first quarter. Increases in interest charges for holding balances on credit products, such as credit cards and mortgage loans, accounted for84.4% of the reduction in net investment income.

Top income earners gain from high investment earnings and self-employment

The highest20% of income earners increased their average disposable income in the first quarter relative to a year earlier at a faster-than-average pace (+1.9% vs. -0.2% for all households). While interest charges for the highest income earners grew, these increases were more than offset by gains in investment earnings, mainly from dividends and bank deposits, which grew at almost double the average pace (+22.7% vs. +13.4% for all households). Gains in net investment income (+13.2%), as well as from self-employment (+13.0%), were partially offset by reductions in transfers payments (-2.7%), mainly from reductions in Employment Insurance benefits, combined with higher taxes paid (+2.8%).

Lower- and middle-income households reduce their net saving the most

For each household group except the highest income earners, net saving in the first quarter dropped below levels recorded three years ago, at the start of the pandemic, as cost-of-living increases outweighed income gains for most households. Middle-income earners (third quintile) were affected most by inflationary pressures over the last year, as they spent an average of $1,306more than they earned in income in the first quarter, while they had positive net saving of $521in the first quarter of2022. Meanwhile, the average net saving of households in the second income quintile decreased by84.6%.

Gap between rich and poor widens at fastest pace on record

Most wealth is held by relatively few households in Canada. The wealthiest (top20%) accounted for more than two-thirds (67.8%) of net worth in the first quarter, while the least wealthy (bottom40%) accounted for2.7%.

The least wealthy households tend to be younger than average. While households aged less than45years accounted for36.2% of all households, they represented55.2% of those in the lowest two wealth quintiles. Younger households have also recently increased their share of the total population, as they accounted for47.3% of all growth since the third quarter of2021. Recent growth in the number of younger households has occurred along with increases in immigration. According to demographic studies, record-high population growth in the year2022 was driven almost entirely (95.9%) by immigration, and recent immigrants are younger than the general population.

The gap in net worth between the most and least wealthy increased by1.1percentage points in the first quarter of2023relative to the same quarter a year earlier. This was the fastest increase on record for these estimates, which date back to2010. In contrast, the wealth gap declined by1.6percentage points over the two-year period from the first quarter of2020to the first quarter of2022. Despite recent increases in the wealth gap, it remained lower in the first quarter of2023(65.1percentage points) relative to the first quarter of2020(65.6percentage points).

The least wealthy were affected more by recent economic pressures, as they decreased their net worth by13.8% in the first quarter of2023relative to the same quarter a year earlier. This reduction represented more than triple the rate of decrease for the wealthiest (-3.8%).

Least wealthy and younger age groups reduce their wealth as mortgage debt increases

The reduction in net worth for all households in the first quarter relative to the same quarter a year earlier was due almost entirely to real estate (92.1%). The average value of real estate held by households declined by8.6% in the first quarter relative to the same quarter a year earlier. According to data on home sale prices, the national average price for a residential home reached $686,000at the end of the first quarter, down13.7% from the first quarter of2022.

Although the least wealthy held and acquired real estate, their average net worth declined in the first quarter relative to a year earlier as the increase in mortgage debt to finance those assets (+23.8%) outweighed the increase in the average value of their real estate holdings (+6.2%). The least wealthy also increased their non-mortgage debt by4.6% over the same period.

Declines in average net worth for the wealthiest were derived entirely by reductions in real estate (-9.8%), while they reduced their mortgage debt (-0.9%). On average, the wealthiest households were relatively less engaged in the real estate market compared with less wealthy households over the last year.

Average net worth decreased the most for households aged less than35years, down8.7% in the first quarter of2023relative to the same quarter a year earlier, compared with a decrease of1.8% for households aged55to64years. Younger households tend to be more susceptible to reductions in real estate values, as they derive more of their net worth from that asset category, while older households have had more time over their life cycle to diversify their asset portfolio. In the first quarter, real estate accounted for88.3% of wealth for households aged less than35years, compared with40.1% for households aged65years and older.

Younger age groups at higher financial risk as debt-to-income ratios reach record highs

Debt-to-income ratios for younger and core working-age groups as of the first quarter were at their highest rates on record, which go back to2010, and well above rates that had existed just before the start of the COVID-19pandemic at the end of2019. Only senior households (aged65years and older) had a debt-to-income ratio that was lower in the first quarter of2023(71.2%) than at the start of the pandemic in the first quarter of2020(71.7%).

Although households of younger workers increased their employment income, persistently high inflation and interest rates continued to restrain their ability to make ends meet, as these households tend to hold higher balances on credit cards and mortgages relative to older age groups. The debt-to-income ratio for the youngest households reached207.5% in the first quarter, up13.4percentage points from the first quarter of2022.

Core working-age households also experienced unprecedented increases in their debt-to-income ratios in the first quarter, reaching275.8% for households aged35to44years, up16.6percentage points from a year earlier, and reaching260.6% for households aged45to54years, up20.5percentage points.

Persistently high interest rates and inflation are likely to continue to strain households' ability to make ends meet without going further into debt, especially vulnerable groups, such as those with the lowest income, the least wealth and those of younger age groups. The latest figures from the Monthly Credit Aggregates program indicate that household debt continued to grow up to April2023.

Products

The data visualization product "Distributions of Household Economic Accounts, Wealth: Interactive tool," which is part of Statistics Canada – Data Visualization Products (Catalogue number71-607-X) is now available.

The article "Distributions of Household Economic Accounts, estimates of asset, liability and net worth distributions,2010to2022, technical methodology and quality report," which is part of the Income and Expenditure Accounts Technical Series (Catalogue number13-604-M), is available.

Details on the sources and methods behind these estimates can be found in Methodological Guide: Canadian System of Macroeconomic Accounts (Catalogue number13-607-X). See section "Distributions of Household Economic Accounts" under Satellite Accounts and Special Studies.

The Economic accounts statistics portal, accessible from the Subjects module of our website, features an up-to-date portrait of national and provincial economies and their structure.

The Latest Developments in the Canadian Economic Accounts (Catalogue number13-605-X) is available.

The User Guide: Canadian System of Macroeconomic Accounts (Catalogue number13-606-G) is available.

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