The wealth gap between rich and poor in Canada widened at fastest pace on record last quarter with the younger households being hardest hit, Statistics Canada revealed in a report released on Tuesday.

The top 20% of households now control a staggering 67.8% of the country’s net worth, while the bottom 40% account for a mere 2.7%.

Of particular concern is the impact on younger households, who bear the brunt of this growing wealth disparity. Although households under the age of 45 make up 36.2% of the total, they represent 55.2% of those within the lowest two wealth quintiles. Additionally, recent demographic studies indicate that the increase in the number of younger households is primarily driven by immigration, which tends to skew towards a younger population.

The report^[1]https://www150.statcan.gc.ca/n1/daily-quotidien/230704/dq230704a-eng.htm?HPA=1 highlights a significant increase in the wealth gap between the richest and poorest households. In the first quarter of 2023, this gap grew by 1.1 percentage points compared to the same period in the previous year, marking the fastest increase since record-keeping began in 2010. However, it is worth noting that despite this recent surge, the wealth gap in the first quarter of 2023 (65.1 percentage points) remains slightly lower than it was in the first quarter of 2020 (65.6 percentage points).

The impact of economic pressures falls disproportionately on the least wealthy, as evidenced by a net worth decrease of 13.8% in the first quarter of 2023 compared to the same period in the previous year. In contrast, the wealthiest households experienced a much milder decline of 3.8%.

A primary factor contributing to the overall decline in net worth for households across the board is the significant decrease in real estate values. Real estate accounted for 92.1% of the reduction in net worth, with the average value of residential homes falling by 8.6% in the first quarter of 2023 compared to the same period the previous year. The average national price for residential homes dropped by 13.7% from the first quarter of 2022, reaching $686,000.

Interestingly, even though the least wealthy households acquired and held real estate, their average net worth declined due to increased mortgage debt (+23.8%), which outweighed the rise in real estate values (+6.2%). Furthermore, the least wealthy households increased their non-mortgage debt by 4.6% over the same period.

In contrast, the wealthiest households saw a reduction in net worth solely due to decreased real estate values (-9.8%), while their mortgage debt decreased by a modest 0.9%. This suggests that the wealthiest households are less reliant on the real estate market compared to their less affluent counterparts.

The report also reveals that average net worth suffered the most significant decline among households under the age of 35, dropping by 8.7% in the first quarter of 2023 compared to the same period the previous year. In contrast, households aged 55 to 64 experienced a milder decline of 1.8%. Younger households, who tend to derive a higher proportion of their net worth from real estate, face greater vulnerability when real estate values decrease. Older households, on the other hand, have had more time to diversify their assets over their life cycles. In the first quarter, real estate accounted for 88.3% of the wealth for households under the age of 35, while it constituted 40.1% for households aged 65 and older.

Another concerning trend highlighted by Statistics Canada is the record-high debt-to-income ratios for younger and core working-age groups. These ratios, which measure debt relative to income, reached their highest levels since record-keeping began in 2010. Only households aged 65 and older exhibited a lower debt-to-income ratio in the first quarter of 2023 (71.2%) compared to the first quarter of 2020 (71.7%).

While younger households have seen an increase in employment income, their ability to manage expenses has been severely hampered by persistently high inflation and interest rates. These households tend to carry higher balances on credit cards and mortgages compared to older age groups. Notably, the debt-to-income ratio for the youngest households skyrocketed to 207.5% in the first quarter of 2023, up 13.4 percentage points from the same period in 2022.

Similarly, core working-age households, specifically those aged 35 to 44 and 45 to 54, experienced unprecedented increases in their debt-to-income ratios in the first quarter. The ratios surged to 275.8% and 260.6%, respectively, marking significant jumps of 16.6 and 20.5 percentage points from the previous year.

Experts predict that persistently high interest rates and inflation will continue to strain households’ ability to manage their finances without accumulating further debt. This situation poses a significant risk, particularly for vulnerable groups such as those with lower incomes, limited wealth, and younger age groups. The latest data from the Monthly Credit Aggregates program indicates that household debt continued to rise until April 2023.