Poor households turn to debt, charity amid inflation

Not surprisingly, rising consumer prices are a tougher challenge for low-income households, which are much more likely to rely on added debt, or charity, to meet their day-to-day expenses, according to new research from Statistics Canada.

In a new report, the national statistical agency documented the disparate effects of inflation on various segments of the household income distribution.

According to the report, its research found that, while 19% of households in the top quintile for income (top 20%) report that they are concerned about their ability to meet their routine expenses in the face of high inflation, it’s a much bigger issue for the lowest-income households — almost two thirds (63%) of the households in the bottom quintile say that they are very concerned about higher prices for food, shelter and other basic expenses.

Amid these greater concerns about their ability to cope with the effects of inflation, low-income households are also much more likely to take on debt to meet their routine expenses, StatsCan said.

Specifically, it reported that 19% of households in the bottom income quintile either had to add debt, or borrow from friends and family, to meet their day-to-day expenses.

By comparison, just 2% of those in the top income quintile reported that they had to borrow to cover their routine household expenses.

Additionally, those at the bottom of the income distribution were much more likely to turn to community organizations for food — 17% of those in bottom quintile reported relying on these groups, compared with 5% for the rest of the population.

Single parents, divorcees and Indigenous populations were most likely to be in the lowest income quintile, StatsCan said.

In particular, almost a third (32%) of single parents are in the bottom quintile, compared with just 8% of couples with children.

Based on data from 2019 (to avoid the distortions brought on by large, temporary income shifts created by the pandemic), StatsCan reported that median income for households in the top quintile was seven times greater than median income for the bottom quintile ($146,000 versus $21,000).

Households in the bottom quintile rely primarily on government transfers, representing 62% of their income, compared with 27% from wages and 7% from self-employment, it noted. For all other groups, government transfers only contribute 9% of income.

And, household net worth for the bottom quintile was more than 20 times lower compared with the rest of Canada — median net worth for the bottom quintile was just $20,000, versus $463,500 for all other income groups.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.