Higher interest rates are punishing low-income Canadians, data shows

The wealth gap in Canada has been widening amid higher interest rates from the central ban as lower-income households less able to benefit from investment opportunities.

The wealth gap is widening amid higher interest rates, Statistics Canada said Monday, as lower-income households face the steepest challenges from the rising cost of living.

The share of disposable income between the top 40 per cent of earners and the bottom 40 per cent widened to 44.9 per cent in the third quarter of 2023, up half a percentage point from the previous quarter, StatCan said in a new report.

That came as the bottom quintile of earners was the only group to see disposable income decline year-over-year.

Though StatCan did note that average wages were up three per cent annually for this group, these households also were hit with a substantial reduction in investment income, down 43.4 per cent year-over-year.

While higher interest rates raise the cost of borrowing and force households to put more of their money towards paying down debt, they can also be advantageous for savers who see higher rates on some investment accounts.

But StatCan said that the lowest income earners are “more likely to have a limited capacity to take advantage of these higher returns,” with more of their monthly cash flow eaten up by rising expenses.

Net savings were down nearly 10 per cent annually for the lowest earners, as StatCan said costs for transportation, health and housing in particular outpaced income gains.

For the top quintile of earners, average disposable income rose faster than any other group in the third quarter. Wages were up 5.7 per cent year-over-year, while net investment income rose 9.9 per cent, the agency said.