Higher interest rates are punishing low-income Canadians, data shows – National

Higher interest rates are punishing low-income Canadians, data shows - National


The wealth gap is widening amid higher interest rates, Statistics Canada said Monday, as lower-income households face the steepest challenges from the rising cost of living.

The share of disposable income between the top 40 per cent of earners and the bottom 40 per cent widened to 44.9 per cent in the third quarter of 2023, up half a percentage point from the previous quarter, StatCan said in a new report.

That came as the bottom quintile of earners was the only group to see disposable income decline year-over-year.

Though StatCan did note that average wages were up three per cent annually for this group, these households also were hit with a substantial reduction in investment income, down 43.4 per cent year-over-year.

While higher interest rates raise the cost of borrowing and force households to put more of their money towards paying down debt, they can also be advantageous for savers who see higher rates on some investment accounts.

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But StatCan said that the lowest income earners are “more likely to have a limited capacity to take advantage of these higher returns,” with more of their monthly cash flow eaten up by rising expenses.


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Net savings were down nearly 10 per cent annually for the lowest earners, as StatCan said costs for transportation, health and housing in particular outpaced income gains.

For the top quintile of earners, average disposable income rose faster than any other group in the third quarter. Wages were up 5.7 per cent year-over-year, while net investment income rose 9.9 per cent, the agency said.

This group saw net investment earnings outpaces rises in interest payments in Q3.

Net worth — a separate metric that includes assets like real estate — was up less than a percentage point annually for the least wealthy cohort, compared with a two-percentage point rise for the wealthiest group.

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StatCan said that while many in the least wealthy group did hold and buy real estate, net worth was “relatively unchanged” annually because the growth in mortgage debt to finance the purchases offset the value of the holdings, which were relatively steady year-to-year.

Youth see debt improvements despite rate hikes

Despite the rapid run-up in interest rates, StatCan found that the youngest household groups (those under 35 years old) were the only age cohort to see average mortgage debt decline year-over-year.

There were a few reasons the agency suggested to explain the five per cent annual decline.

Some prospective homeowners in this demographic might not be able to afford a home and therefore are forgoing mortgage debt, StatCan suggested. Existing homeowners who bought when rates were lower and are struggling with an upcoming renewal might be paying off their mortgages or otherwise moving into more affordable accommodations, the agency added.

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The debt-to-income situation — a key measure of Canadians’ ability to service their loans — was a mixed bag across demographics in the third quarter.


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The youngest cohort saw debt-to-income ratio decline in the third quarter thanks to reductions in mortgage debt and strong wage gains. Seniors, too, saw a decline in this ratio amid solid investment gains.

But for the core-age working population, the debt-to-income ratio accelerated year-over-year. The metric is highest at 255.9 per cent among those aged 35 to 44.

StatCan noted that despite the declining debt-to-income ratio for the youngest adults, that’s largely thanks to having less overall debt, and they’re still paying more on the remaining loans amid higher interest rates.

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

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