Majority of Canadians now have more debt than savings, StatCan says. Here’s why the wealth gap is widening

Canada’s income inequality continues to widen, highlighting the struggle of the lowest income Canadians to make ends meet amidst a prolonged cost-of-living crisis.

Income inequality increased in the third quarter of 2023, according to Statistics Canada's latest report. The wealthiest Canadians had their income buoyed by high wages and investment income, while the persistently high cost-of-living weighed on the lowest income households, draining them of their net savings.

In the third quarter of 2023, the wealthiest 20 per cent of Canadians with an average net worth of $3.3 million accounted for 67.4 per cent of the total net wealth across the country. In comparison, the bottom 40 per cent of Canadians had an average net worth of $67,738 and made up just 2.8 per cent of Canada’s total net wealth. The poorest 20 per cent of Canadians had a 0.2 per cent negative share of net wealth, meaning their total assets were outweighed by debt and liabilities. 

Low-income Canadians continue to be hit by cost of living

The new report comes amidst sky-high inflation that has left the most vulnerable Canadians in the lurch. While rent, food and other costs of living have been going up, wages for many professions have been stagnant — except for executives and top-earning Canadians. A new January report from the Canadian Centre for Policy Alternatives found that C-suite bosses saw their pay skyrocket in 2022. Meanwhile, indicators of the cost-of-living, like the living wage, have been increasing as the minimum wage has barely kept up.

“Most wealth is held by relatively few households in Canada,” StatCan wrote in its report. It’s a trend that has continued since July, when StatCan last updated this data. Economists at the time blamed the impact of the Bank of Canada's rate-hikes that squeezed low-income and indebted households.

Compared to a year ago, the gap between Canada’s richest 20 per cent and the poorest 40 per cent grew by 0.2 per cent, according to StatCan’s analysis, mainly driven by growth in financial assets held by the wealthy, while the cost of transportation, health care and housing all weighed on the lowest income households.

Majority of Canadians have more debt than savings

In just the span of a year, while net savings for low-income households decreased by 9.8 per cent, high-income households saw their net savings grow by 4.6 per cent. Now, the majority of Canadians — the bottom 60 per cent — have a negative net savings, meaning they're in debt, while the average wealthiest household in Canada has $53,656 in net savings. In terms of debt relative to disposable income, the poorest Canadians were $2.84 in debt for every dollar of disposable income they had, compared to $1.39 per dollar owed by high-income households. In general, Canada has some of the worst debt ratios of all G7 nations, and credit card debt has especially spiked amidst the increased cost of living.

Canadians in the highest income bracket also had more than $50,000 in disposable income, nearly seven times that of low-income Canadians, who had an average $7,515 in disposable income. Compared to a year ago, while low-income Canadians saw their disposable income shrink by 1.2 per cent, high-income Canadians saw significant growth — 3.2 per cent — in extra spending money.

The StatCan analysis also found that core-working age groups, aged 35 to 64, had the highest jump in their debt-to-income ratios. For Canadians in those groups, on average, their debt outpaced their disposable income.

“Persistently high interest rates and inflation are likely to continue to strain households' ability to make ends meet without going further into debt,” the StatCan report concluded, “especially vulnerable groups, such as those with the lowest income, the least wealth and in the younger age groups.”