Who says Canada’s middle-class is in trouble? Certainly not household wealth data
Concerns over the financial situation of Canada’s middle-income households typically focus on their income, i.e., how much they earn in a year. Here we look at their wealth — how much they own at a given time — and how it has changed over the past two decades.
The table presents data from 1999 and 2016 showing the average value of assets and liabilities owned by Canadian households with middle incomes — to be precise, households with after-tax incomes falling in the third quintile (i.e., the third fifth) of household incomes. The amounts are expressed in inflation-adjusted 2016 dollars.
Over these 17 years, the real (i.e., inflation-adjusted) value of middle-income household net worth grew at an average annual rate of 4.0 per cent. The growth was mainly driven by the real value of the equity households hold in their principal residence, which grew at an average annual rate of 5.0 per cent. Although mortgage debt also grew over this period, home equity — the value of a home in excess of the remaining mortgage debt — grew slightly, from 72 per cent to 75 per cent.
As would be expected, in both years most middle-income households’ most important assets were their principal residence and their private pension assets, which together accounted for more than two-thirds of middle-income household assets. It’s interesting that although mortgages accounted for two-thirds of middle-income household debt only about one-third of middle-income households held a mortgage in 2016. Two-thirds of such households were either renting or had paid off their mortgage. Among those who did hold a mortgage in 2016, its average value was just over $186,000. In 2016, 40 per cent of middle-income households carried debt on their credit cards, virtually the same proportion as in 1999. Vehicle loans, by contrast, were a growing source of debt.
These data suggest that when it comes to household wealth, the average middle-income household is in a good and steadily improving economic position. These are national averages, however, and the data might look different in some parts of the country. The percentage of mortgages in arrears, for example, differs significantly by province, from 0.09 per cent in Ontario and 0.14 per cent in B.C. to 0.5 per cent in Alberta and 0.85 per cent in Saskatchewan. Policies meant to address concerns over the finances of middle-income households might therefore best be directed toward specific areas of the country, likely certain urban centres where housing costs are very high. Of course, targeting policies in this way would be challenging for a federal government to do on its own.
Ron Kneebone is a professor in the Department of Economics and Margarita Wilkins a research associate in the School of Public Policy, both at the University of Calgary. This article is adapted from their recent contribution to the School’s Social Policy Trends series.