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Printed from The Vanier Institute of the Family's website at www.vifamily.ca. © 2007.
The Current State of Canadian Family Finances 2001 Report Table of Contents
INTRODUCTION AND TECHNICAL NOTE This third annual report updates the current state of family and household finances. The very positive response to previous annual reports suggests that individuals, families, governments, business, unions, the media and many other organizations want and need to know more about how families are doing financially. Families are the main focus of this report. Numerous indicators help provide insights up to 2001. The latest family income measures relate to the year 1999. Additional information is also available for what is called the personal sector and this is used to provide several of the estimates for all households up to the year 2000. Households include both families and unattached individuals. About two-thirds of households are family households. In a general sense, the recent trends for households provide a good "directional" guide to what is happening in families. All measures have been converted to a per family or per household basis. Most dollar estimates are in 1999 dollars and thus variations over several years represent changes in real purchasing power changes after inflation. The term "real" indicates what would have happened if there had been no inflation. The measures incorporate updates and any recent revisions by Statistics Canada. Much of the analysis relates to the 1990s and the years 2000 and 2001 with special emphasis on the latest three years ending in 1999 or 2000 depending on the data series. The charts cover each year from 1990 to the latest year available. The text tables and the appendices provide the total change over the entire period and for each of the last three years. Shaded (grey) areas in the tables represent deterioration or declines for the selected indicators. Readers should examine the two Appendix tables to get a more detailed perspective of the changes experienced by different types of families and households. Additional details on sources of data for Charts 1 to 18 are provided at the end of the report. The opinions expressed are those of the author and may not represent the views of the Vanier Institute of the Family. Any errors and omissions are the responsibility of the author. Roger Sauvé can be reached at 403-938-0071, fax (403-938-9271), Email (peoplepatternsconsulting@sympatico.ca), or at his Website (www.peoplepatternsconsulting.com). ANNUAL SAVINGS TUMBLE There has been a dangerous decline in annual savings. In 1990, Canadian households, on average, put aside about $6,300 in savings including payments to government pension plans … by 2001 this dipped to only $1,700 or only one-quarter of the annual savings in 1990. SURE FEELS LIKE A RECESSION By the end of 2001, it was evident that the economy had been slowing for several months … and the September 11 terrorist attack and its aftermath made it unstable. The near-term prospects do not look promising as the latest numbers for help-wanted advertising have plummeted by over one-fifth over the last year. The economic slowdown is being felt on the home front with consumer bankruptcies on the rise again. FAMILY INCOMES AT NEW HIGH FOR SECOND STRAIGHT YEAR IN 1999 Prior to the recent slowdown, average family incomes after income taxes and transfer payments increased by 1.8% in 1999 (the latest year available). The increase was smaller than during the previous two years and pushed incomes to record levels for the second year in a row. The previous record had been set in 1989. MARKET INCOME GAINS MAY HAVE STALLED IN 2001 Early indications relative to average hourly earnings and the number of hours worked suggest that average family incomes may have increased just a bit in 2000 but are likely to be flat in 2001. MORE INEQUALITY DURING THE 1990'S The share of the total "family income pie after taxes" that went to the poorest 20% of families shrank from 7.6% to 7.4% between 1990 and 1999, while the share that went to the richest 20% of families increased from 36.7% in 1990 to 38.3% over the same period. While the economic recovery has benefited all five major income groups, it has been of most benefit to the rich. DIRECT HEALTH SPENDING HARDEST ON THE POOREST Outlays for health care jumped by one-quarter during the decade. According to a detailed household survey, the poorest 20% of households allocated 3.5% of their total expenditures to health care, which is more than double the share for the richest 20% of households. STOCK MARKET MOVEMENTS PUT NET WORTH AT RISK In aggregate terms, all of the improvement in average net worth over the decade was due to the increased value of shares and pensions. If the value of these shares and pensions hold their own or increase, then the debt ratios would tend to remain near current levels. If, however, the stock market was to fall dramatically, the value of these shares and pensions would also fall. As of the end of January 2002, the value of shares, as measured by the Toronto Stock Exchange 300 index, was down by about 20% from a year earlier. By the end of 2001, it was evident that the economy had been slowing down for several months … and the September 11 terrorist attack and its aftermath made it worse. The jobless rate had reached a 25-year low of 6.6% in the middle of 2000. However, it then started to rise and by the middle of 2001 it was up to 7% and had climbed to 8% by November. The economy had created very few jobs since January 2001. Average hours worked had also fallen off.
The near-term prospects do not look promising as the latest numbers for help-wanted advertisements have plummeted by one-quarter over the last year. The slowdown is being felt on the home front with consumer bankruptcies on the rise again. For many households and families, it sure must feel like a recession!
FAMILY INCOMES AT NEW HIGH FOR SECOND STRAIGHT YEAR IN 1999 Average family incomes after income taxes and transfer payments increased by 1.8% in 1999 (the latest available). The increase was smaller than during the previous two years and pushed incomes to record levels for the second year in a row. The previous high was in 1989.
Incomes earned in the market (employment and self-employment, investments and private retirement income, etc) increased by another 1.4% in 1999 but this was much slower than the huge 4.7% increase in 1998. Government transfers to families (Employment Insurance, child tax benefits, CPP/QPP, Old Age Security, etc) dipped for the third consecutive year. Average income tax payments per family dipped by 2.9% from their highest ever level in 1998. The average decline of $363 decline recorded in 1999 followed other reductions in income taxes earlier in the decade. Average income taxes had declined by over $900 during the recession at the beginning of the 1990s.
HOURLY EARNINGS... FLAT FOR A WHILE BUT NOW FALLING AGAIN Average hourly earnings, after adjusting for inflation, increased following the recession of the early 1990s. Then nothing happened on the road to the recovery. Average hourly earnings did not increase at all between 1994 and 2000 and were beginning to fall again in 2001. Even though the prices of goods and services increased slowly during the last half of the decade, they totally wiped out the meagre wage gains derived from the market incomes.
The number of hours worked per week rose during the last half of the decade. In both 1999, 2000 and 2001, workers put in, on average, about 31.6 hours of paid work per week. This compares to 30.8 hours at the low point of the recession in 1991.
As noted in table 1, average family incomes increased in the second half of the 1990s, by virtue of higher market earnings. Some of this advance was due to an increase in the proportion of families with multiple earners. In 1996, about 74% of non-senior (under 65 years of age) families had two or more employment earners … this rose sharply to over 76% in 1997 and remained there to 1999. It seems that the stronger economy, providing more jobs, along with the flat hourly earnings pulled more spouses, youth and other relatives (anyone over 18 living in the same household) into the job market. If the current economic slowdown continues, the number of multiple-earner families may dip once again.
MARKET INCOME GAINS MAY HAVE STALLED IN 2001 Early indications relative to average hourly earnings and the number of hours worked suggests that average family incomes may have increased just a bit in 2000 but are likely to be flat in 2001.INCOME GAINS IN 1999 LEFT SOME FAMILIES BEHIND Appendix A provides more details on after tax incomes for selected types of families. The shaded areas indicate declines in incomes. The second last column in Appendix A, which summarizes changes between 1997 and 1998 has only two shaded cells, indicating that improvements were widespread in that year. Shaded cells were still rare in the last column that describes what happened between 1998 and 1999, but a few more did appear.Among family types, the biggest improvements in after tax incomes in 1999 were for senior married households (+7.2%), the poorest one-fifth of families (+5.2%) and families in Newfoundland (+4.3%). In 1999, relatively small declines in after tax incomes were registered for married couples without children (-1.5%), for female lone-parents (-0.6%) and for families living in Alberta (-0.3%), British Columbia (-1.1%) and Manitoba (-1.2%). UNATTACHED INDIVIDUALS EXCEED DECADE-EARLIER LEVELS … BY $107 It took one more year than it did for families, but average after tax incomes of unattached individuals surpassed the previous record level set in 1990. Even so, the new record for 1999 was just 0.6% higher than in 1990 or up by $107. Average incomes for this group had dipped to under $21,000 in 1996.In 1999, average incomes of non-senior females (+5.9%) and non-senior males (+2.3%) both improved strongly for the second year in a row. In contrast, senior females (-0.2%) and senior males (-0.7%) experienced small income declines. (See Appendix A) Covering the decade as a whole, senior males experienced income increases of over 10% with senior females up by 3.5%. Non-senior males suffered (-2%) income declines over the decade while non-senior females just barely held their own.
MORE INEQUALITY DURING THE 1990'S An easy way to look at income distributions in society is to divide families into five equal groups from the poorest to the richest. (See Appendix A)Good short-term news for all family income groups … each of the five income groups saw their incomes rise in both 1998 and 1999. In 1997, four out of five groups had income increases with the exception being for the poorest group. Good long-term news for all family income groups… the average family incomes for all five family income groups were higher in 1999 than in 1990. Over the decade, the biggest increases were enjoyed by the richest (+10.6%) and the slowest gains were experienced by the bottom 60% of family income groups. In 1999, the poorest 20% of families had an average income after income taxes of $19,056 compared to an average of $98,657 for the richest 20% of families. The share of the total "family income pie after income taxes" that went to the poorest 20% shrank from 7.6% to 7.4% over the decade, while the share that went to the richest 20% of families increased from 36.7% in 1990 to 38.3% in 1999. The shares going to each of the middle-income groups all shrank a little during the decade. Between 1990 and 1995, the richest 20% of families had incomes that were, on average, about 4.8 times larger than those of the poorest 20% of families. This ratio jumped to 5.4 times by 1998 and was still at 5.2 times in 1999. The economic recovery seems to have benefited all income groups but has been of most benefit to the rich.
LOW-INCOME RATES IMPROVED FOR THE THIRD CONSECUTIVE YEAR Statistics Canada classifies families as being in low-income (some label this as poverty) if they spend 64% or more of after transfers/after income tax incomes on food, shelter and clothing. In 1999, a family of four living in a city with a population of 500,000 or more with less than $28,392 of incomes after income taxes and transfers was classified as low-income.Low-incomes rates for all families as a group and for all unattached individuals as a group improved during each of 1997, 1998 and 1999. This was not so for all of the sub-groups. In 1999, the improvement was strongest for male lone-parents (-3.6 percentage points) while the situation worsened the most for senior females (+2.0 percentage points) and for families in British Columbia (+2.6 percentage points). The situation is not promising from a longer-term perspective. The low-income rate for all families in 1999 stood at 8.6%, still slightly higher than in 1990. The low-income rates among non-senior families, with and without children, both increased a bit over the decade while the low-income rates among non-senior unattached individuals jumped significantly over the period.
SECOND EARNERS GREATLY REDUCE POVERTY In 1999, a non-senior married couple with children and with one earner brought in about $43,000 after paying their income taxes. A two-earner family with children had just over $58,000 after income taxes. The low-income rate among the first group of families with one earner was 19.1% compared to only 3.7% among those families raising children on two incomes. The income difference between one and two-earner families without children was also about $15,000. The low-income rates of these couples were 8.7% and 1.9% respectively.Over the 1990 to 1999 period, the low-income rate among one-earner families, with or without children, increased while it fell among two-earner families.
MORE EDUCATION MEANS MUCH LESS POVERTY The typical low-income measure focuses on a single year. A different methodology enables us to measure how many people experienced low-incomes over a longer period of time.
Taking all persons aged 25-54, about 20% experienced low-income in at least one year between 1993 and 1998. About 30% of persons in this age group, who had not completed high school suffered from low-incomes during the period, which is three times higher than the rate for those with a university degree. Education defines, in large measure, those who are most vulnerable to poverty. DIRECT HEALTH SPENDING HARDEST ON THE POOREST Total spending per household, after discounting for inflation, expanded by a strong 2.9% in 2000. This was the eighth consecutive annual increase since the low point for household expenditures in 1992. Spending was up by almost 11% from 1990 and the increase was significantly above the advance in incomes of both families and unattached individuals.As was the case over the last several years, the most rapid increase (+6.2%) was for purchases of recreation, entertainment, education and cultural goods and services. Spending on this category soared by almost 44% between 1990 and 2000. Expenditures on clothing and footwear jumped by 4% in 2000 but, in spite of this, spending per household remained below 1990 levels. Strong increases in 2000 were also evident for furniture, furnishings and equipment (+3.7%) and for transportation and communication goods and services (+3.2%). Direct spending per household on medical care and health services grew less rapidly than in previous years but still increased by 1% between 1999 and 2000. Direct outlays for this category by the average family jumped by one-quarter during the decade. According to a detailed household survey 1 covering the year 1999, the poorest 20% of households allocated 3.5% of their total expenditures to health care, which is more than double the share (1.7%) for the richest 20% of households. Only one-quarter of the poorest 20% of households had purchases of dental services compared to almost two-thirds of the richest households. Only one-quarter of the poorest 20% of households bought prescription eyewear in 1999 compared to over one-half of the richest households.
ANNUAL SAVINGS TUMBLE… AND ONLY THE TOP 40% ADDED TO SAVINGS Canadian households are having difficulty putting aside money for a rainy day or for retirement. This has resulted in a dangerous decline in annual savings. In 1990, Canadian households, on average, put aside $6,300 in savings including payments to government pension plans … by 2001 the level of annual savings dipped to only $1,700 or only one-quarter of the 1990 average. Savings as a percent of after tax incomes dipped from 20% in 1981, to 13% in 1990, to 3.9% in 2000 and to only 3.5% in 2001.
Based on estimates from another survey, the bottom 60% of households, including the poorest, the lower-middle and middle-income groups all had negative changes in assets, loans and other debt in 1999 totalling some (-$6.8) billion. The upper-middle 20% accumulated a net increase of $6.4 billion while the richest 20% of households added over $30 billion to their savings in 19992. Canadian households, on average, owed $52,960 in mortgage, consumer credit and "other debt" (such as lines of credit) in 2000. (See chart 14 and table 3). The level of debt per household shrank in 1991 but has increased each and every year since then. The increase of 1% in 2000 was the smallest advance since 1995.Over the 1990 to 2000 period, total household debt jumped by 17.3%, with the fastest growth for consumer credit (+20.4%), followed by mortgage debt (+16.9%) and "other debt" (+13.9%).
DEBT PLATEAUS AS PERCENT OF AFTER TAX INCOMES In 1990, the total amount of debt outstanding was equal to 93% of average household incomes after income taxes (personal disposable income). This ratio climbed to 111% by 1999 and declined just a bit in 2000.
EVEN SO… THE "BURDEN" OF DEBT IS RISING AGAIN According to a recent report by the RBC Financial Group3 the debt "burden" can be defined to include interest and principal payments on mortgage and non-mortgage debt, property taxes, condo fees plus fuel and electricity costs. The burden is expressed as a percentage of after income tax incomes. This ratio captures both debt levels and the interest rate cost of these debts.In 1991, the debt "burden" consumed 22% of household incomes. In mid-2001, the debt burden was as high as it had been since 1992. This increased debt "burden" may explain, at least in part, why the rate of consumer bankruptcies, as indicated in Chart 1, showed an increase at the beginning of 2001.
Other debt ratios flattened out in 1999 and 2000.
NET WORTH STILL RISING BUT MORE SLOWLY Canadian households, on average, had a net worth (assets minus debts) of $241,340 in 2000. The 1% increase in net worth between 1999 and 2000 was the smallest gain since 1995. Net worth per household has grown every year since 1992 and in 2000 was 17.7% above the level in 1990.Over the entire period, the value of assets, debt and net worth each advanced by about 17% or so. The most rapid growth in the components was the 74% increase in the value of shares and the 53% jump in the value of life insurance and pensions. The only item of investment that shrank was for Canada Savings Bonds (CSBs).
SENIORS SEE BIGGEST INCREASES SINCE 1984 An occasional study by Statistics Canada provides additional details on changes in net worth between 1984 and 19994. The analysis is for the "household in the middle" or for the "median" in more technical terms. The analysis excludes the value of employer pension plans. A series of short articles on this report are available under the Wealth section of the Vanier Institute website. 5.Over the 1984 to 1999 period;
STOCK MARKET MOVEMENTS PUT NET WORTH AT RISK In aggregate, Canadian households seem to have decided that it is time to stop increasing their debt ratios (chart 17) or at least keep them in line with the growth in their incomes (chart 15). Of course, this is being done at a time when debt loads are at very high levels. When interest rates are brought into the picture, then the actual dollar "burden" of this debt (chart 16) has risen into the year 2001.The risks to many families and unattached individuals are in two main areas. First of all, the economy may now be in recession and this could have negative impacts on household incomes. Charts 1 and 2reveal that a slowdown or even a recession may have already begun. The second risk is linked to the performance of the stock market. The chart below clearly shows that, at least in aggregate terms, all of the improvement in average net worth over the decade has been due to the increased value of shares and pensions. If the value of these shares and pensions hold their own or increase, then the debt ratios will tend to remain near current levels. If, however, the stock market was to fall dramatically, then the value of these shares and pensions would decrease. As of the end of January 2002, the value of shares, as measured by the Toronto Stock Exchange 300 index, was down by about 20% from a year earlier. A decline in the value of shares and net worth would have a negative effect on consumer confidence and spending. This decline would place a heavy strain on the entire economy and deepen any downturn in the economy. By the same reasoning, rising stock markets would help support consumer confidence and spending.
APPENDIX A - Average Incomes Of Families And Unattached Individuals After Income Taxes
APPENDIX B - Families And Unattached Individuals With Low-Incomes (Poverty) After Income Taxes
1 Statistics Canada, Spending Patterns in Canada, 1999 (62-202-XPE and custom tabulations) plus estimates by author. Additional details on Chart Sources Chart 1 - Statistics Canada, Cansim D738862 (Help-wanted) and matrix 7508 (Bankruptcies) Note: Household numbers for the years 1990 to 1999 are derived from Statistics Canada, Income in Canada, 1999. Household numbers for 2000 and 2001 are assumed to grow at the same percentage rate as in 1999.
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