- Cost-of-living increases outweighed income gains in Q4 2022, leading to a decrease in net savings and wealth in Canada. Lower-income and vulnerable households were affected the most.
- Income inequality decreased in 2022 due to strong gains in employment income for lower-income earners. However, the wealth gap between the most and least wealthy homes continued to widen.
- Real estate values declined in 2022, affecting household net worth. Around two-thirds of the decrease in net worth for all families was due to real estate.
Editor’s Notes: In this report, we have used data from the Statistics Canada website.
The distributions of household economic accounts in the fourth quarter of 2022 saw a decrease in net savings and wealth in Canada, mainly due to increased cost of living and declining asset values. Unfortunately, the negative impact affected more vulnerable households, including younger age groups, families with lower income, and less wealth. Despite this, these families still have higher net savings and wealth than before the COVID-19 pandemic.
Narrowing of Income Gap Due to Strong Gains in Employment Income for Lower-Income Earners
Income inequality decreased in 2022 as the share of disposable income between households in the two highest and two lowest income quintiles declined by 0.3 percentage points relative to the previous year. Households in the second quintile increased their income the most (+3.2%), mainly due to higher-than-average increases in employment earnings. In contrast, disposable income grew at a slower-than-average pace for the lowest quintile (+1.6%).
Year-over-year gains in average wages and salaries for lower-income homes (+13.5%) were partially offset by lower transfers (-0.8%), mainly due to the expiry of pandemic-related government benefits, and higher interest payments (+4.3%) that weighed on net investment earnings. Borrowing became more costly for families as the Bank of Canada increased its policy interest rate to 4.25% at the end of 2022, up 400 basis points from a year earlier.
Higher Income Earners Gain from Employment Income and Investment Earnings
Households in the highest 20% of income earners increased their average disposable income in 2022 relative to a year earlier at a slower-than-average pace (+1.4%). Gains in wages and salaries (+2.4%) and net investment income (+9.0%) were partially offset by reductions in transfers received (-12.8%), such as from reductions in Employment Insurance benefits, combined with an increase in the amount of taxes paid (+3.4%).
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Important Household Actual Final Consumption 2022
Net Saving for Lower- and Middle-Income Households Affected Most by Cost-of-Living Increases
Net savings decreased for households in each income quintile in 2022, as cost-of-living increases outweighed income gains. For the first time since before the pandemic, middle-income earners (third quintile) returned to negative net savings in 2022, meaning that, on average, these households spent approximately $700 more than they earned in income. The average net saving of households in the second income quintile decreased by 50.3%.
Although net saving was reduced for households in each income quintile in 2022, it remained above the levels recorded in 2019. Households in each income quintile increased their spending on most goods and services over the last year, especially for food and accommodation services, clothing and footwear, and transportation.
The wealth gap widens but remains lower than before pandemic
Despite the overall decrease in household net worth, the wealth gap between the most and least wealthy households continued to widen. In the fourth quarter of 2022, the wealthiest families (top 20%) accounted for 67.9% of net worth, while the least wealthy families (bottom 40%) accounted for only 2.6%.
The gap in net worth between these two groups increased by 1.1 percentage points in the fourth quarter of 2022 relative to the same quarter a year earlier, the fastest increase on record for these estimates, which date back to 2010.
In contrast, the wealth gap declined by 1.5 percentage points over the two years from the end of 2019 to the end of 2021. Despite recent increases in the wealth gap, it remained lower at the end of 2022 (65.3 percentage points) relative to the end of 2019 (65.7 percentage points).
The least wealthy families were affected more by recent economic pressures, as they decreased their average net worth by 16.3% in the fourth quarter of 2022 relative to the same quarter a year earlier, more than triple the rate of decrease for the wealthiest families (-5.2%). This can be attributed to several factors, including the high cost of living, falling real estate values, and increased debt.
Real estate values decline, affecting the household net worth
In 2022, around two-thirds of the decrease in net worth for all households was due to real estate (66.1%). The average value of real estate held by households declined by 8.1% in the fourth quarter of 2022 relative to the same quarter a year earlier. According to data on home sale prices, the national average price for a residential home reached $625,000 at the end of 2022, down 12.1% from 2021.
Although the least wealthy families bought real estate in 2022, their average net worth declined as the increase in mortgage debt to finance those purchases (+25.3%) outweighed the increase in the average value of their real estate holdings (+8.5%). In addition to mortgage debt, the least wealthy households also increased their non-mortgage debt (+10.4%), such as credit card balances, by more than other households.
In contrast, declines in average net worth for the wealthiest families were derived entirely from reductions in both real estate (-6.8%) and financial asset values (-4.9%), such as stocks and bonds. Although they experienced a decline in net worth, the wealthiest families maintained a higher average net worth compared to other families.
Most Wealth Held by Relatively Few Households in Canada
In Canada, wealth is unevenly distributed among families, with a relatively small number of households holding a significant amount of wealth. According to Statistics Canada’s 2016 Census data, the top 10% of households in terms of net worth held 56.2% of the country’s total net worth.
Furthermore, the top 1% of families held 13.7% of the country’s total net worth, which was an increase from the 11.2% they held in 1999. On the other hand, the bottom 50% of households only held 6.5% of the country’s total net worth.
These statistics reveal a significant wealth gap in Canada, where a small group of families holds a substantial amount of wealth while a large portion of the population holds very little. This can have important implications for social inequality, as wealth can be a major factor in determining access to opportunities and resources.
| Household Economic Accounts | Q4 2022 |
|---|---|
| Net saving | Decreased for all income quintiles |
| Middle-income households returned to negative net saving | |
| Lower-income households affected the most | |
| Net saving remained above levels recorded in 2019 | |
| Income inequality | Decreased due to strong gains in employment income for lower-income earners |
| Wealth gap between most and least wealthy households continued to widen | |
| Wealthiest households accounted for 67.9% of net worth, while the least wealthy accounted for only 2.6% | |
| Gap in net worth between these two groups increased by 1.1 percentage points in Q4 2022 compared to the same quarter a year earlier | |
| Real estate values | Declined in 2022, affecting household net worth |
| Two-thirds of the decrease in net worth for all households was due to real estate | |
| Average value of real estate held by households declined by 8.1% | |
| National average price for a residential home reached $625,000 at the end of 2022, down 12.1% from 2021 | |
| Least wealthy households' average net worth declined by 16.3%, triple the rate of decrease for the wealthiest households | |
| Least wealthy households increased their mortgage debt (+25.3%) and non-mortgage debt (+10.4%) more than other households |
Conclusion
Overall, the data from the fourth quarter of 2022 highlights the impacts of economic pressures on families in Canada. The cost of living increased, while asset values declined, resulting in decreased net savings and net worth for households. The impacts of these changes were felt most acutely by more vulnerable households, such as those with lower incomes, less wealth, and in younger age groups.
Although income inequality decreased slightly, the wealth gap continued to widen, with the wealthiest families accounting for a disproportionate share of net worth. Moving forward, policymakers and stakeholders will need to consider ways to address these economic pressures and support households in building their financial resilience.
