HOUSEHOLD FINANCES
WHAT YOU NEED TO KNOW ABOUT CHANGES IN HOUSEHOLD FINANCES IN THE COVID ERA • Canada’s lower-income and younger households have experienced the largest declines in wages & salaries but have also received the largest increase in government transfers • The value of fiscal supports has generally exceeded the deficits in employment earnings created by the pandemic for lower-income and younger households • Savings and net worth have increased for many Canadian households during the pandemic, with lower-income groups seeing the most significant growth • Historically-low lending rates have facilitated the move into home ownership for many Canadians
the rennie brief
MARCH 2021
Household economic well-being has shifted significantly due to Covid-19, with fiscal supports and low interest rates conspiring to improve Canadians’ balance sheets.
reaching an average of $786,000 per Canadian household. Interestingly, household net worth for those in the lowest quintile of disposable income (that is, those in the bottom 20% of disposable income) grew more than it did for other households—up 6.3% as of Q3 2020 relative to the end of 2019. Households in the highest income quintile saw a 4.8% gain. LOW LENDING RATES HAVE FACILITATED HOME PURCHASES, ESPECIALLY FOR LOWER-INCOME AND YOUNGER HOUSEHOLDS Although the pandemic reduced job security for many younger households, both lower-income earners and younger households acquired mortgage debt at a faster pace than other households. Households have been prompted towards home ownership by, among a range of factors, historically-low mortgage rates. For the lowest-income households, average mortgage debt increased by 5.4% from the end of 2019, while households headed by someone under the age of 35 saw mortgage debt increase by 5.8%. That being said, although these households increased their mortgage liabilities, they also became less leveraged over this period as property values grew at a faster pace than new debt: from the end of 2019 to Q3 2020, the ratio of mortgage debt to real estate assets decreased from 32.9% to 32.2% for the lowest- income earners, and from 51.7% to 50.7% for the youngest age group. LOOKING AHEAD These data shed light on recent changes in the finances of specific segments of the Canadian population. While some may argue it has been excessive, it seems that the targeted government spending programs and Bank of Canada monetary policy are laying a sound economic foundation upon which Canada can transition into a post-Covid era. This foundation will be fundamentally important as we navigate the new fiscal reality of paying for the largest economic relief package Canada has seen since World War II.
Despite the challenging economic conditions created by the spread of Covid-19, recent data from Statistics Canada sheds light on some unexpectedly positive trends for Canadians’ household finances—especially for lower-income and younger households, who have been most impacted by negative labour market outcomes. LOWER-INCOME & YOUNGER HOUSEHOLDS HAVE EXPERIENCED THE LARGEST DECLINE IN WAGES, BUT HAVE ALSO RECEIVED THE LARGEST INCREASE IN GOVERNMENT TRANSFERS During the first three quarters of 2020, disposable income for Canada’s lowest-income households increased by 37%, which was more than for higher-earning households. This was driven by targeted government transfers to households that were almost 60% above pre-pandemic levels. For those in lower-income brackets and in younger age groups, the value of government supports has generally exceeded the deficits in employment earnings created by our response to Covid-19. Through Q2 2020, for example, younger and middle- aged households gained, on average, around $3,000 more through support payments than they lost in income; middle- income households, meanwhile, gained an average of $2,500 more than they lost. As more people returned to work in Q3 these gains fell into the range of $1,000 to $2,500, respectively. HOUSEHOLD SAVINGS & NET WORTH HAVE GROWN DURING THE PANDEMIC As a result of increased disposable incomes generated from enhanced government support measures and lower consumer spending, Canadians have seen net household savings increase. It has been middle-income earners who experienced some of the biggest gains in savings, as they moved from a savings deficit to a net positive saving position (this is the first time dating back to 1999—when these data were initially tracked—that middle- income earners in Canada have been net savers). Driven in part by increased savings, household net worth had grown by 5.2% by Q3 2020 versus the end of 2019,
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