TORONTO — The gap between the highest earners and lowest income groups last year was at its widest since 2015 as the wealthiest households saw income grow much faster than lower-income Canadians.
Higher interest rates are pushing middle- and lower-income households to spend more conservatively, which means consumer spending by the top earners will play a critical role in keeping the broader economy going.
As the national household net worth rebounded to 4.5 per cent last year, from a 6.5 per cent decline in 2022, the gains were not evenly distributed across income levels, the report said.
"Higher-income households benefited relatively more due to their larger holdings of financial assets, which were the main wealth drivers last year," said Maria Solovieva, an economist with TD Bank, in her report.
Household income in the top category was average of $197,909 in 2023 — up 6 per cent from the previous year. Meanwhile, middle- and low-income households saw a stagnated growth or worse, decline.
The report shows low-income households saw a gain of 0.3 per cent at $31,518 average annual income, while middle-income households saw a decline of 0.3 per cent at $59,178 average annual income last year.
A decline in real estate assets, meanwhile, affected middle- and lower-income households as mortgage debts increased. Middle-income households became more indebted than before the pandemic years as mortgage renewals and debt-servicing fees increased amid high interest rates.
As a result, middle- and lower-income households cut back on discretionary spending — furnishing, household equipment and recreational activities. The cutbacks were significant among low-income households, the report suggests.
Inflation, meanwhile, pushed these households to tap into their savings to make ends meet — causing a direct implication on future spending as these families will have fewer resources to turn to, the report said.
It added lower-income groups will continue to remain tight on resources in the coming years and will be forced to make harder economic choices, slowing down their spending to historical averages.
"This will create a drag on spending," wrote Solovieva.
Spending from the high-earning group, meanwhile, will keep the economy moving as they continue to maintain purchasing power.
This report by The Canadian Press was first published April 22, 2024.
The Canadian Press
