Amid the worst economic downturn in decades, Canadian households are seeing wealth hit a record high while debt burdens shrink relative to income.
The total wealth of Canadian households hit $12.3 trillion in the July-September period of this year, up 6.9 per cent from a year earlier, Statistics Canada data released Friday shows.
Meanwhile, the debt Canadians carried has shrunk relative to incomes. Canadian households on average owed $1.71 for every dollar of disposable income, down from $1.81 a year earlier. However, that’s higher than in the second quarter of this year, thanks to increased borrowing as the economy reopened following the spring lockdowns.
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The run-up in wealth can be attributed to a combination of things: Soaring stock markets and house prices; generous income supports from the government for people who lost work in the pandemic; and a lack of things to spend money on during lockdowns, which has driven households’ savings to an estimated record of $90 billion (or $170 billion if you include business’ savings).
But what the data doesn’t show is the difference between higher and lower-income households. Those at the lower end of the income ladder took the brunt of job losses this year, and it’s expected the country will end 2020 with some 700,000 fewer jobs than it started with.
Statistics Canada’s quarterly reports don’t break down debt and wealth numbers by income group. But generally, debt as a share of income “tends to be higher for lower income quintiles,” the agency said in its report Friday.
That’s certainly true looking at annual data from previous years, which shows that households in the bottom fifth of earners carry considerably more debt than households at the top of the income ladder.
The cash stockpile appears to be a part of the federal government’s recovery plan, with Finance Minister Chrystia Freeland calling it the “economy’s pre-loaded stimulus” in last month’s fiscal update.
Many experts agree, saying this cash will benefit the economy as the vaccine is rolled out and restrictions are lifted.
“All those savings Canadians have been amassing, they’ll start spending some of that on services,” said Dawn Desjardins, chief economist at Royal Bank of Canada, in an interview with the Financial Post.
“Services certainly is the area of the economy that really has been significantly hurt by what we’ve had to do to combat and contain COVID-19.”