Household savings and wealth took a hit in the third quarter of 2022 as spending and debt growth outpaced income and assets, according to new data from Statistics Canada.
Overall, the gains households made during the pandemic have now evaporated amid the shift in economic and financial conditions.
“In contrast with earlier in the pandemic, household wealth has recently been assailed by a perfect storm of economic pressures, with asset values declining along with turmoil in financial and housing markets, as well as increasing interest rates and persistently high inflation,” StatsCan said.
This perfect storm resulted in a 6.0% drop in average household net worth in the third quarter, compared with the same quarter a year earlier.
“On average, regardless of a household’s demographic or economic characteristic, gains in household wealth acquired over the previous year have been erased,” StatsCan noted.
At the same time, the household wealth gap — the difference between the top 20% and the bottom 40% — continued to widen in the third quarter, rising by half a percentage point.
For the top 20%, declines in net worth are being driven by the fall of both real estate values and financial asset values. For lower-income households, higher debt loads are to blame.
StatsCan noted that average debt was flat for the top 20% of households (up by just 0.1%), but jumped by 7.9% for the least wealthy.
Lower-income households have been hit hardest by the shifting conditions, the agency reported, as net worth for the bottom 40% of income earners declined by 10.8% in the quarter, and net savings for this group was down by 12% from pre-pandemic levels.
The middle class is also being squeezed by rising household expenses.
StatsCan reported that the middle-income quintile suffered the largest drop in net savings in the third quarter, down by 14.8% from a year earlier.
“Over the last year, along with inflationary pressures, households in each income quintile increased their spending on most goods and services, especially food and accommodation services, clothing and footwear, and transport,” it noted.
Higher-income households are holding up better.
StatsCan reported that, for the top 20% of earners, average disposable income was flat with the same quarter a year ago, as gains in self-employment income, shareholder dividends and bank deposits offset a decline in wages. Households in the next quintile had the smallest decline in savings, down by just 2.2% year over year.
“In general, households with higher disposable income tend to have a better ability to absorb cost-of-living increases, as a smaller portion of their budgets are dedicated to spending on necessities,” it said.