Canada in some ways is a tale of two economies.
On the surface, it looks like household finances have never been stronger, with savings at record levels, says Royal Bank of Canada economist Carrie Freestone in a recent report.
“But under the surface there are clear signs that the average Canadian consumer is suffering,” she said. “Delinquency rates are rising, demand for services like food banks is at record levels, and per-capita household spending is falling like the economy is in recession.”
The reason for this disparity is that the accumulation of household savings in Canada has not been evenly distributed, said Freestone.
The people piling up the savings are Canada’s highest earners, the top 20 per cent. This group is putting away about one third of their take-home pay each quarter, she said.
Since 2019, the top 40 per cent of earners accounted for 60 per cent of the appreciation in financial assets.
“This explains why household deposits have risen significantly while food banks struggle to meet demand,” said Freestone.
Inflation, higher interest rates and rising unemployment have all eroded the purchasing power of the lower income groups.
“Those in the bottom 20 per cent of income earners are going into debt to purchase essentials,” said the economist.
Lower income households got a reprieve during the pandemic from government aid, but now they are back to where they were in 2019, spending 105 per cent of their disposable income on essentials, she said.
And it’s not just lower earners who are being squeezed.
The economy coming out of the pandemic have also stretched the finances of the middle class.
In 2023, this group put the biggest share of their take-home pay to essentials since 1999, said Freestone. In 2024,
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