Lower income Canadians hit hard by high interest rates, income gap widens

The disposable income gap between top earners and bottom earners increased year over year

Lower income Canadians hit hard by high interest rates, income gap widens

High interest rates have continued its impact on Canadian households, with those who have lower incomes seemingly hit the hardest, according to a study by Statistics Canada, as reported in an article by BNN Bloomberg.

The report found that the disposable income gap between top 40 percent earners and the bottom 40 percent rose by 0.5 percent in third quarter of 2023, year over year.

Statistics Canada said that the high interest rates were the reason behind the growing gap as it has taken a lot of the disposable income of those who were part of the lowest earners. This has caused them to have not enough money to invest even as there were high yields present in the market.

The report explained that as the higher interest rates can lead to higher yields on saving and investment accounts, households with the lowest income were more likely to not have the capacity to take advantage of this, given that they barely have enough for savings and investments.

High-income households utilize current investment environment

Meanwhile, high-income households notably took advantage of the current investment environment as the top 20 percent of earners had their disposable income increase by 3.2 percent in the third quarter. This was attributed to the rise of their wages as well as their net investment income which were an uptick of 5.7 percent and 9.9 percent, respectively.

However, lowest-income households saw their net savings drop by 9.8 percent in the third quarter of 2023, which was because of the rising cost of living outpacing the increases in their wages and investment returns. This has left them to use their savings in order to be able to pay their bills.

In terms of mortgage debt, the youngest households in Canada were the only ones who were able to have their debt decline in the third quarter in contrast to the previous year. According to Statistics Canada, this may entail that there were more young people who were turning their backs from homeownership or were selling their homes because of problems concerning affordability.