In the first quarter of 2024, income and wealth disparities in Canada saw a significant shift, with the income gap widening to its highest rate since 2008. This period marked a critical juncture as economic well-being indicators for lower- and middle-income households, as well as for younger households under 45, showed improvement for the first time in three years.
The first quarter of 2024 witnessed a notable increase in income inequality. The gap in disposable income between the top 40% and the bottom 40% of income earners was the largest since 2008. The effects of rising interest rates in 2023 were felt unevenly across different income levels. While higher interest rates generally lead to increased borrowing costs, they also provide higher yields on savings and investments. Lower-income households, however, often lack the resources to benefit from these higher returns.
Interestingly, the lowest income households (bottom 20%) experienced above-average gains in disposable income, primarily due to strong wage increases (+24.6%). These wage gains, mainly from sectors such as professional and personal services, transportation, and mining, offset the increases in interest payments on mortgages and credit cards. In contrast, middle-income households saw their share of disposable income decrease by 1.0 percentage points as their wage gains failed to keep up with rising interest payments.
The highest income households (top 20%) experienced a faster-than-average increase in disposable income (+7.7%) due to substantial gains in investment earnings, which outpaced the increases in interest payments. This trend highlights the growing disparity between income groups, as those with greater financial assets could leverage higher investment returns more effectively.
For the first time in three years, lower- and middle-income households saw improvements in their average net saving. The easing of cost-of-living pressures played a significant role in this trend. While the highest income households recorded the largest increase in net saving (+$1,657), lower- and middle-income households reduced their net dis-saving as income gains began to exceed spending increases. However, higher expenditures on housing and utilities continued to challenge many households.
The concentration of wealth remained stark, with the wealthiest 20% of households holding more than two-thirds (67.6%) of Canada’s total net worth. This group averaged $3.4 million per household, whereas the bottom 40% held just 2.8% of total net worth, averaging $70,356. The wealth gap between the top 20% and the bottom 40% grew to 64.8%, up by 0.3 percentage points from the previous year.
Financial assets, which grew by 5.3%, significantly benefited the wealthiest households. In contrast, real estate values saw a slight decline (-0.7%), impacting the net worth growth of the least wealthy households, whose mortgage debt offset their real estate gains.
Younger households, particularly those under 35, continued to reduce their mortgage debt amid affordability concerns driven by rising interest rates and inflation. This trend was evident as their mortgage debt declined, albeit at a slower pace, in the first quarter of 2024 compared to previous quarters. Many younger households opted to avoid the housing market or moved into more affordable accommodations, while others received financial support from family to manage their debt obligations.
The first quarter of 2024 also saw a decline in the debt-to-income ratio for younger age groups for the first time in three years. This improvement was driven by wage increases that outpaced debt growth. Households with a major income earner aged 35 to 44 years still had the highest debt-to-income ratio (264.2%), but this was a decrease from 268.4% a year earlier. Similarly, households with main income earners under 35 reduced their ratio by 25.0 percentage points.
Renters faced significant challenges in generating savings and building wealth. On average, renters had lower incomes compared to homeowners, limiting their ability to cope with rising living costs. In the first quarter of 2024, renters’ average disposable income was $14,867, while homeowners’ was $27,994. Renters also spent a higher proportion of their income on housing (33.3%) compared to homeowners (22.8%).
The disparities in income and housing costs hindered renters’ ability to save for homeownership. Homeowners accounted for 91.0% of all wealth, equally distributed between real estate and financial assets. Over the past four years, homeowners’ net worth to income ratio increased significantly, while renters’ net worth grew at less than half the pace of homeowners.