Canadian savings deteriorate as spending outpaces income: report

A report by Boston Consulting Group indicates that the savings of the majority of Canadian households, especially the bottom 80% of earners, have significantly deteriorated. This is primarily due to consumer spending growing at a much faster rate than disposable income. For the lowest 20% of earners, spending increased by 27% over five years while income only rose by 3%. Households are bridging this gap by depleting savings, leveraging asset growth, and increasing debt. The report also notes a shift in spending towards services, with real spending on essentials and durable goods falling. The middle 60% of earners are also spending more than their income, worsening their financial position, while the lowest 20% are falling deeper into negative savings and seeing their net worth shrink.

1. Past five years

   Spending for the lowest 20% of earners jumped 27%, while disposable income increased by only 3%.

2. Present

   Net savings across the bottom 80% of households have turned materially negative.

3. By 2025 (projected)

   The lowest quintile is projected to average -$39,000 in yearly savings.

The report analyzes the financial health of Canadian households by examining income growth, spending patterns, savings rates, and debt accumulation over the past five years. It segments households by income quintiles to highlight disparities in financial resilience. The analysis focuses on the impact of rising service costs and declining purchases of durable goods on overall household finances. It also considers the implications for businesses operating in a potentially fragmented consumer market.

• Household Financial Health

  A significant portion of Canadians are experiencing a decline in their savings and an increase in debt, making them more vulnerable to economic shocks like rising interest rates or asset value depreciation.

• Consumer Market Fragmentation

  The divergence in spending and income growth across different income groups means businesses can no longer rely on a single 'average consumer,' requiring more nuanced strategies to reach diverse customer segments.

• Economic Vulnerability

  Widespread financial strain among households could lead to reduced overall consumer demand, potentially slowing economic growth and increasing the risk of financial instability.

• Policy Implications

  The findings may prompt discussions about government policies related to income inequality, cost of living, and consumer protection, particularly for lower and middle-income households.

Boston Consulting Group

The report presents a data-driven analysis of Canadian household finances, highlighting significant deterioration in savings for most income groups due to spending outpacing income growth.

Canadians (bottom 80%)

Experiencing financial strain, with rising costs and stagnant incomes forcing them to dip into savings and take on more debt to maintain their spending levels, particularly on services.

Businesses

Facing a more complex and fragmented consumer market, requiring adaptation of strategies to cater to diverse income groups with differing financial capacities and spending priorities.

This report reflects a continuation of trends observed in recent years, where rising inflation, increased cost of living, and stagnant wage growth for many have put pressure on household budgets. The shift towards service-based economies and the impact of global economic factors on Canadian consumers are also ongoing themes. The specific focus on the widening gap between spending and income, particularly for lower and middle-income households, highlights a persistent challenge of economic inequality.