Wealth inequality gap widens, even among the rich

The rich really are getting richer, but the poor are also falling further behind. That’s the finding from the latest Statistics Canada study on the inequality of wealth between 1984 and 2005.

Between 1984 and 1999, the real (adjusted for inflation) wealth of Canadians grew approximately 10%. It grew even faster in the years that followed, at a rate of between 10% and 14% between 1999 and 2005. Over the full period of the study, the median Canadian’s wealth increased between 21% and 26%.

At the same time, the gulf between the rich and the rest of Canada continues to widen. The richest 10% of Canadians currently hold about 56% of all household wealth, up from 52% in 1985. By contrast, half of Canada’s families share only 5% of the wealth. (see Median wealth of families, below)

Several factors weigh on the study’s findings. According to René Morissette and Xuelin Zhang, the authors of the study, the gap between the rich and poor is due to gains in the value of housing while the value of holdings by the poorest Canadians — who are less likely to own their home — was little changed.

A report released by TD Economics at the same time sheds further light on the role housing played on increasing the wealth of Canadians. The bank notes that principal residences are the single most important source of wealth for Canadians, representing 33.4% of their total assets.

TD adds that private pensions make up the second-largest asset class of Canadians, composing 29% of total assets. Employer-sponsored pension plans make up the bulk of that figure (18.5%), while RRSPs, RRIFs and LIRAs make up the rest — at least for those who have retirement savings. A report released earlier this month by StatsCan estimates that 3.9 million Canadian families, 29% of the total, had no private pension assets in 2005.

According to StatsCan, the median wealth is falling in the bottom 40% of the distribution, but rising in the top 40%. Overall, the median wealth of the major income recipient in 2005 was $84,000, which is up roughly $10,000 from 1999 and up more than $17,000 from 1984 (in 2005 dollars). Over the same period, the average wealth was $251,700. That’s up substantially from 1999 when the average wealth was $202,900, and considerably higher than the average wealth of $148,500 recorded by StatsCan in 1984.

“When compared to the degree of inequality for income, it’s clear that wealth is much more highly concentrated among a smaller proportion of the population,” notes the TD report. More disconcerting, however, is the size of the population with little wealth or who carry more debt than assets. The bottom fifth of the wealth distribution actually recorded a negative net worth.

Earlier this month, StatsCan reported that more Canadian families are carrying more debt, mostly as a result of growing demand for mortgages and consumer credit. Canadians had debts estimated at $760 billion in 2005, which is nearly 1.5 times higher than the level in 1999.

Not surprisingly, education played a key role in determining the median and average wealth. In 2005, the median wealth of Canadians who do not have a university degree was $68,500 while the average wealth was $214,700 versus $144,900 and $364,800 for those who have earned post-secondary degrees.

Another factor contributing to the widening wealth gap is inheritances. Ten per cent of Canadians in the bottom fifth of the wealth distribution receive inheritances, with a market value of about $13,200. More than a third of Canadians in the top fifth of the wealth distribution, meanwhile, receive inheritances, typically with a market value of $136,600.

Age also contributed to the rise in net worth of Canadian families. As the TD report notes, “Time is also a powerful tool for the accumulation of wealth.” The report adds that elderly families have the largest median net worth of all family classifications.

Inequality among the rich

Interestingly, the wealth gap is not limited to the rich and poor. There is a pronounced difference between the mean and median asset holdings among the richest 20% of Canadians. While the median net worth for this group is $862,900, the average wealth is a hefty $1,264,200, which, TD says, suggests a significant skew toward the extremely wealthy.

The super-wealthy tend to have more of their holdings in bonds and the nebulous category of “other financial assets,” which includes the contents within their residence, valuables, collectables, as well as some rare items like copyrights and patents.

The wealthiest segment of the top quartile also owns a significant portion of the equity in businesses and stocks.

Median wealth of families (including unattached individuals), by quintile, 1984 to 2005*
Quintile	1984	1999	2005	1999 to 2005	1984 to 2005
	(2005 dollars)			% change
Bottom	$0	-$700	-$1,000	-43	n/a
Second	$14,100	$14,400	$12,500	-13	-11
Third	$67,300	$74,400	$84,800	14	26
Fourth	$143,400	$181,400	$212,600	17	48
Top	$335,500	$464,900	$551,000	19	64
* Excluding the value of registered pension plans. Source: Statistics Canada

Filed by Mark Brown, Advisor.ca, mark.brown@advisor.rogers.com

(12/13/06)