Persistently high interest rates are having varying impacts on household finances as higher interest rates can lead to increased borrowing costs but also lead to higher yields on savings and investment accounts.
A recent publication from Statistics Canada, Distributions of household economic accounts for income, consumption, saving and wealth of Canadian households, second quarter 2024, examines this to find that Canada’s wealthiest households increased their net worth at the fastest pace of any household group during the period being studied.
Income inequality rose
“Economically vulnerable households – those with lower income, those with less wealth and those in younger age groups – continue to struggle to maintain their financial well-being relative to other households amid persistently higher interest rates and housing cost pressures,” they write. “Income inequality increased in the second quarter of 2024 as the gap in the share of disposable income between households in the top 40 per cent and the bottom 40 per cent of the income distribution reached 47 percentage points, the largest gap ever recorded in these data.”
The report, which looks at debt-to income ratios and debt service ratios as well, also notes that most wealth is also held by relatively few households in Canada. The wealthiest households held 67.7 per cent of Canada’s total net worth in the second quarter of 2024, averaging $3.4-million per household. Canada’s least wealthy had wealth averaging $69,595.
Middle-income households
As for wage growth, lowest income households saw wages increase more than interest paid on mortgages and consumer credit. Middle-income households decreased their income relative to a year ago, as investment gains did not keep pace with growth in interest paid and Canada’s highest income households saw the largest increase in their disposable income, as their growth in investment income was far greater than any interest paid during the quarter.
“Most households improved their average net saving in the second quarter of 2024 relative to a year earlier, as cost of living pressures generally eased,” they add.
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