As interest rates in Canada remain persistently high, economically vulnerable households continue to face significant financial challenges. Statistics Canada’s latest report on household economic accounts for the second quarter reveals widening income inequality, increased financial pressure on middle-income households, and a growing wealth gap.
Income inequality reached new heights in Q2 2024, with the gap in disposable income between the highest-earning 40% of households and the bottom 40% expanding to 47 percentage points. This is the largest gap recorded since Statistics Canada began tracking this data in 1999. While higher interest rates have had varied effects on household finances, lower-income households have struggled to capitalize on investment opportunities, resulting in a widening financial chasm.
Lower-income households saw a notable increase in disposable income, driven primarily by wage growth in sectors like health, education, and professional services. Despite an average wage gain of 14.3%, these households also experienced a substantial rise in interest payments on mortgages and consumer credit. Meanwhile, middle-income households struggled, as their investment gains were outpaced by growing interest payments, contributing to a 1% decline in their share of disposable income.
In contrast, the highest-income households saw their disposable income increase by 7.6%, primarily due to investment gains that exceeded rising interest costs.
Most households improved their net saving positions in Q2 2024, as cost-of-living pressures began to ease. However, middle-income households faced increasing difficulties, with higher spending on housing and utilities outpacing income growth. In contrast, the highest-income households experienced a significant increase in net savings, with an average gain of over $2,000. Lower-income households reduced their net dis-saving as income growth exceeded spending, offering some respite for this group.
Canada’s wealth distribution remains highly concentrated, with the top 20% of households holding 67.7% of the country’s total net worth in Q2 2024. The average net worth of these wealthiest households stood at $3.4 million, while the bottom 40% of households held just 2.8% of the country’s wealth, averaging $69,595 per household. The wealth gap continued to widen as financial asset gains benefitted the wealthiest households, who increased their net worth by 2.3%, compared to the average household increase of 1.6%.
Housing affordability remained a significant concern for younger households, with those under the age of 35 reducing their mortgage debt balances for the third consecutive quarter. High interest rates and rising housing costs have pushed many younger households out of the housing market, while others have been paying off existing mortgages or moving into more affordable accommodations.
The youngest households made notable efforts to reduce their debt-to-income ratios in Q2 2024, with those under 35 years old achieving the largest reductions. However, despite these efforts, their interest-only debt service ratio (DSR) continued to rise, reaching 12.2%. High lending rates and growing effective interest payments, combined with shorter credit histories, left younger households more exposed to financial risk.
Older households also saw slight improvements in their debt-to-income ratios, benefiting from higher investment earnings. However, those in the 35 to 44 age group continued to carry the highest debt-to-income ratios, with ongoing concerns over managing debt repayments amid persistently high interest rates.
The second quarter of 2024 paints a challenging economic picture for Canadian households, with high interest rates exacerbating existing inequalities in income and wealth. Lower-income and middle-income households continue to feel the strain, as wage gains and saving improvements are outpaced by rising interest payments and housing costs. In contrast, higher-income households are better positioned to benefit from investment opportunities, further widening the financial gap between the wealthiest and most vulnerable Canadians. The differing financial experiences across income and age groups underscore the growing disparities within the country’s economic landscape.