TORONTO – High interest rates have had a negative impact on low-income Canadian families more than on wealthy ones, as a new report from Statistics Canada highlights. A rather obvious thing, given that low-income families have less ability to “defend themselves” from the increase in the cost of living: but the Statistics Canada report, beyond the obvious conclusion, analyzed savings and wealth in the third quarter of 2023 and what emerges is that the low-income group was also penalized by a laughable increase – of 3% – in average salaries, which is was abundantly absorbed by a 43% drop in net income from possible investments and, above all, by higher rates for consumer credit. The richest, however, enjoyed a greater increase in average wages (almost 6%) and net investment income (almost 10%). This group therefore experienced the fastest pace of average disposable income and was the only group to increase net investment income.
With tighter budgets – especially due to transport, healthcare and housing – lower income families therefore found themselves saving less, with a net decrease of 9.8% on an annual basis, while families higher income earners increased their savings by 4.6%. In short, the wealth gap is widening.
The 20% of the population, i.e. the “rich” part, accounted for more than two thirds of the net worth in the third quarter of 2023, with an average of 3.3 million dollars, while the less “rich” part (40%) accounted for 2.8%, averaging $67,738. In the third quarter of 2023, the least wealthy increased their net worth by 0.9%, while the richest gained 2%.
The report also found that debt-to-income ratios were highest for working-age families (35 to 64 years old) in that period, ranging from 164.2% to 255.9%, and increased by approximately 6% for these Canadians compared to the previous year. The majority of working-age households have seen a faster pace of increase in debt relative to disposable income as interest rates have increased service costs. The debt service ratio was 11.5% for those aged 35 to 44 (+3.1 percentage points from Q3 2022) and 9.7% for those aged under 35 years (+2.4 percentage points) because, even though their debt burden was reduced, the cost of “maintenance” was higher due to higher interest rates.
In short: a disaster on all fronts for the “poor”, while the rich always fall on their feet, crisis or not.
Pic by Wolfgang van de Rydt from Pixabay