How Canadians’ Incomes and Wealth Changed During the Pandemic

Statistics Canada recently released some data measuring changes to household incomes, expenditures, savings rates, assets and liabilities during the pandemic.

I decided to create a few graphs to illustrate their findings.

Before we get to the graphs, here are some of Stats Canada’s key findings:

  • Disposable income declined for most households in the fourth quarter of 2020, with the largest losses for the lowest-income earners (-10.2%).
  • Despite declines in disposable income in the fourth quarter, all households recorded higher income in 2020 compared with 2019.
  • In 2020, the lowest-income earners saw their net worth grow more than that of other households. These gains were driven by larger increases in real estate assets that outpaced increases in mortgage debt.
  • Lower-income households reduced their non-mortgage debt by more than other households, also contributing to their higher gains in net worth in 2020.

Household incomes rose for all income brackets during the pandemic:

As you might expect, spending declined:

This allowed many Canadians to save more. Note, however, those in lower income quintiles still have negative savings rates:

Higher incomes, less spending and greater savings helped propel net worth. Of course, Canadians’ net worth also got a big boost from rising real estate and financial asset values:

Finally, Canadians are exiting this pandemic in a better financial position than when they entered:


What if the Canadian Government Gave Everyone $45k at Birth

Governments exist to provide public goods (like streetlights) and to socialize certain individual costs (like healthcare) for the overall benefit of its population. It can be argued, therefore, that in addition to free healthcare it might be in a society’s best interest to ensure a secure retirement for every citizen.

Many governments already do this to some extent. In Canada, for example, people who contributed to the Canada Pension Plan will benefit from a schedule of payments upon retirement. Those who haven’t contributed may receive alternative retirement funding, such as the Old Age Supplement and the Guaranteed Income Supplement.

None of these provide for a particularly flush retirement, however it keeps most of Canada’s retired residents housed and fed.

What if, instead of providing supplemental income at retirement, the government gave a lump sum to each person born in Canada? The lump sum would be untouchable until retirement, and would be invested on the baby’s behalf until he reaches age 65.

Assuming a nominal return of 7% and inflation rate of 2%, a $45,000 investment at birth would equate to $3.7 million in nominal terms and just over $1 million in real terms (after inflation) by age 65. All things equal, this should provide a comfortable retirement for every person born in Canada, eliminating the need for OAS and GIS. Moreover, employees would no longer need to contribute to CPP or individual retirement portfolios, freeing up more money for consumption, if desired. But for the sake of simplicity, let’s assume people continue to contribute to CPP.

Providing $45,000 to every resident at birth would likely lead to a number of unintended consequences – such as birth tourism – but let’s leave that to the side and examine whether the broad idea is even feasible. This is a high-level conceptual look, not a thorough scientific analysis, and is meant to spark ideas and generate discussion, not propose ultimate solutions.

According to Statistica, it is expected that about 375,000 babies will be born in Canada in 2020. Therefore, to provide $45,000 for every baby born would cost about $16.875 billion annually. A ton of money. Yes, but not in relative terms.

How could $16.875 billion in new spending ever not be a ton of money? According to Employment and Social Development Canada (ESDC) – a department within the Canadian federal government – planned spending on OAS and GIS in 2017-2018 was $51.155 billion. Far more than the cost of the lump sum at birth, with much worse end results. Using the 4% rule of thumb for sustainable withdrawals, a $1 million portfolio could sustainably generate $40,000 in annual income (in today’s dollars). In contrast, OAS and GIS currently provide maximum $7,368 and $10,992 in annual income.

That’s 54% less retirement income at 3 times the annual cost to the Canadian government. While this analysis doesn’t consider all the nuances and knock-on effects, the idea seems worthy of further discussion.

2017-2018 Planned spending figure
Real Estate Wealth

Canadian Housing Prices Down 10% Since Feb

Canadians aren’t working.

Employment has collapsed, as much of Canada slowly emerges from Covid-19 quarantines. In fact, the number of employed persons in Canada is near a 15 year low (see chart below).

This probably underestimates the problem because it doesn’t include people who are still technically employed but not receiving a paycheque. Many of these people will undoubtedly be added to the unemployment rosters soon.

Canada Employed Persons

It’s no secret that Canadian households are up to their eyeballs in debt. Debt requires money to service, making Canadians highly vulnerable to a negative change to their incomes. The current change is probably the worst we’ve ever seen, putting all forms of household debt at risk of default.

Hundreds of thousands of Canadians suddenly can’t pay their debts and have deferred their mortgages as a result – especially in Quebec, Alberta and Ontario (see chart below). But as I explained in a previous article a mortgage deferral is not a free lunch. The deferred payments are simply adding to what the borrower already owes. (In case you weren’t paying attention, that includes interest on deferred interest.)

All mortgage deferrals do is delay the inevitable. The ability for Canadians to start paying their mortgages again in the future is dependent on employment picking up very quickly. Unfortunately, this doesn’t seem likely. It could take several years for joblessness to shrink back to pre-Covid-19 levels.

The massive volume of mortgage deferrals is a stark warning sign: The Canadian housing market is on the verge of collapse, and with it the Canadian economy.

Simply put, when people can’t pay their mortgages, either they sell and become renters or the bank forecloses and sells the property for them. Either way, a lot more distressed sales enter the market, putting downward pressure on prices. Couple this with a dearth of buyers – due to general economic weakness – and housing inventories rise, again pushing prices down.

It’s only been 3 months and housing prices in Canada area already down 10% across the board. Some parts of Toronto are already down 18%.

While these numbers might not sound huge, they are. A 10-18% change within 3 months is massive! Unless the unemployment situation resolves quickly, by the end of 2020 prices could be down 20-30% across the board.

This isn’t just a housing market issue. The entire Canadian economy is overly dependent on housing and housing-related activity to drive GDP growth. A housing slump will be felt across the entire Canadian economy, with the drag lasting for years.

Ironically, if the housing market declines significantly it will open the door to home ownership to Millennials and Gen Z, which until now were locked out of the market.

Real Estate

11 Signs Canada Housing On Verge of Collapse

A recent Bloomberg article provided a view of the deteriorating condition of the Canadian housing market. It’s dire and in my opinion will get worse because the economy is being pushed to the edge by the Covid-19 coronavirus crisis.

Housing crises are slow-motion train wrecks, so don’t expect the pain to be immediately obvious, like in the stock market. While this might seem to make it more manageable, it actually extends the economic pain. If you are unfamiliar with what a housing-led economic implosion looks like, you should brush up on what happened to the US after 2006 and Canada after 1989.

The US housing collapse took years to eventually bottom, resulting in massive economic dislocation, human suffering and a near-collapse of the global financial system. Coming out the other side of the collapse was a long, slow uphill battle for most.

Canada saw the same after its real estate bust in the early 1990s. Years of stagnation and relatively high unemployment.

Of course, in both the US and Canada the real estate bust eventually created massive opportunities for many.

The following key stats from the Bloomberg article illustrate the immediate vulnerability of the Canadian housing market and the overall Canadian economy:

1) Nearly one in three workers have applied for income support.

2) Canadian households are among the world’s most indebted.

3) Real estate has become Canada’s largest sector. Including residential construction, it accounted for 15% of economic output last year; energy accounted for 9%.

4) The City of Vancouver fears it’s heading for insolvency after it surveyed residents and found that 45% of households say they can’t pay their full mortgage next month and a quarter expect to pay less than half of their property tax bills this year.

5) Canadian households owe C$1.76 for every dollar in disposable income. In Vancouver, that spikes to about C$2.40

6) Canadians owe C$2.3 trillion in mortgages, credit card, and other consumer debt, about equal to the country’s GDP, which is an even higher ratio than the U.S. had before its housing bust.

7) If only 2% of the housing stock were to be listed for sale, it would trigger the kind of supply shock behind a 1990 crash, according to Veritas. That’s most likely to come from investors, half of whom weren’t generating enough cash to cover the cost of owning their rental properties, Veritas found in a survey last September.

9) 30% of apartment rent due April 1 went uncollected, according to estimates by CIBC Economics.

10) Nearly a third of Canada’s Airbnb hosts — who jointly had 170,000 active listings in late 2019 — need the income to avoid foreclosure or eviction, Airbnb said in a letter to the Canadian government last month.

11) Nearly 6 million Canadians have applied for income support. Lenders had deferred nearly 600,000 mortgages, about 12% of the mortgages they hold, as of April 9.

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You’re Richer Than You Think? City by City Median Income in Canada

Feb 14, 2020 Update: I originally chose a sample of cities across Canada so not every single one is in the chart below. Due to popular request here is the data for Ottawa-Gatineau and Edmonton: Ottawa-Gatineau median salary is $40,128. 90th percentile is $97,713. Edmonton has a median income of $56,058. 90th percentile is $134,997.

If you’re like me you probably compare yourself to the people within your industry or social group. In particular, you look at the people you admire as the benchmark for your own success.

If you work in a high paying field like law or finance you are comparing yourself to a small elite group. This group is not representative of society in general. By comparing yourself to the upper echelon of society you likely feel like you are falling behind. However, even the worst paid surgeon makes more than most of the general population.

Reality Check: How Does Your Income Actually Compare?

I dug up some data on incomes in various Canadian cities, from Calgary to Victoria. I then calculated the 50th and 90th percentile incomes for each city for male workers. (The 50th percentile means 50% of the population is below that number. The 90th percentile means 90% of the population is below that number.)

I displayed the data below for worker salaries in each city. As you can see, 50% of the working population in each Canadian city makes less than a fairly modest income. For example, 50% of workers in Halifax earn less than $40,000.

My point: before worrying about how shitty you’re doing or how you are falling behind, take a look at how the rest of the population is faring. You may be surprised by your own relative success.

Note 1: this data is from 2015 so the Alberta figures may have fallen since due to the challenges in the oil patch.

Note 2: part time student and senior workers likely pull the data down, but this doesn’t change the point.

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Stocks Don’t Always Rise Over the Long Term

Ask any investment professional about the risk of investing in stocks and they’ll likely say that given enough time stocks always rise.

Well, the Japanese stock market proves that stocks can indeed decline for decades. As you can see in the chart below, between 1989 and 2009 (20 years for those who can’t do the math) the direction of the Nikkei 225 was down. In fact, it has been 30 years and the Nikkei still is roughly half of it’s 1989 peak. So much for stocks always rising over the long run.

Nikkei 225 Index (Japanese stock market)

OK, but Japan is a special case, right? True, there are big cultural and economic differences between Japan and countries like America and Canada. But does that really mean US stocks can’t have a similar experience?

History as a guide.

Let’s look at inflation-adjusted total returns for the US stock market going back to 1872.

The table below shows how frequently someone investing in the US stock market would have experienced a negative real return over a 5, 10, 15 and 20 year period.

As you can see, there have been plenty of historical 5, 10 and 15 year periods where the US stock market experienced negative real returns. While there are no 20 year periods with negative returns, there was still one 19 year period (1943-1961) with a negative return.

Imagine investing your money today and barely breaking even after accounting for inflation by Christmas 2039. It has happened and it can happen.

[table id=3 /]

Moral of the story: There is no rule saying the US stock market always has to rise over long periods of time. And history proves this. Even if your time horizon is very long, investing is still risky. Of course, the chance of a poor outcome diminishes with time, but you must still consider the possibility. Still, one has to also consider the alternatives during periods in which stocks perform poorly. It may be that stocks remain the cleanest dirty shirt during these periods – i.e. the best of a range of poor investing options.

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