THE CURRENT STATE OF
CANADIAN FAMILY FINANCES
2002 REPORT

INTRODUCTION AND TECHNICAL NOTE

This fourth annual report updates the current state of family and household finances. The report examines incomes, spending, saving and net worth across family and household types. The positive response to previous annual reports suggests that individuals, families, governments, business, unions, the media and many other organizations want and need to know more about how families are doing financially. This report is gradually becoming a source document for both the general public and researchers. Some of the findings are now being included in textbooks.

Families are the main focus of this report but the latest available family income measures relate to the year 2000. More information, and it is more up to date, is also available for what is called the personal sector and this is used to provide several of the estimates for all households up to the year 2001 and in some instances for part of 2002. Households include both families and unattached individuals. About two-thirds of households are family households and the recent trends for households provide a good "directional" guide to what is happening in families.

For ease of understanding and to make the results more relevant, all measures have been converted to a per family or per household basis. Most dollar estimates are in 2000 dollars and thus variations over several years represent changes in real purchasing power after inflation. The term "real" indicates what would have happened if there had been no inflation. The measures incorporate updates and any recent revisions by Statistics Canada.

Much of the analysis relates to the last decade, 1991 to 2001, with special emphasis on the latest three years ending in 2000 or 2001 depending on the data series. The charts cover each year from 1991 to the latest full year available. The text tables and the appendices provide the total change over the entire period and for each of the last three years. Shaded (grey) areas in the tables represent deterioration or declines for the selected indicators. Readers are urged to examine the two Appendix tables to get a more detailed perspective of the changes experienced by different types of families and households.

Additional details on sources of data for Charts 1 to 16 are provided at the end of the report.

SELECTED HIGHLIGHTS OF THE 2002 REPORT

MORE GOOD INCOME NEWS FOR MOST FAMILIES

Average family incomes after income taxes and transfer payments improved by a healthy 3.0% in 2000 and set another new record at $54,725. This was the third new record high. Female lone-parents had the biggest improvement while senior unattached males had the biggest decline. The percentage of households with low-incomes (poverty) shrank for the fourth year in a row. The rate for all families of two or more persons peaked at 10.7% in 1996 and dropped to 7.9% in 2000.

ELIMINATING CHILD POVERTY IS NOW AN ANNUAL $2.8 BILLION CHALLENGE

The number of children under the age of 18 living in poverty declined to 868,000 in 2000.The annual aggregate low-income poverty shortfall for all non-senior families with children is now about $2.8 billion. This is the amount that would be required to raise the income of all low-income (poor) households with children up to their applicable low-income cutoffs.

TAXPAYERS AND THEIR GOVERNMENTS PLAY KEY ROLE IN REDISTRIBUTION

Even though inequality is getting worse, there continues to be significant transfers of incomes from the richest to the poorest families. In 2000, the poorest 20% had a net gain of $8,099 per family while the richest 20% of families made a net contribution of $30,814 per family.

SPENDING UP EACH YEAR FOR A DECADE

Canadian spending per household advanced by another 1.3% in 2001 and marked a full decade of positive increases. Spending on recreation, entertainment, education and culture jumped by over 50% over the decade or triple the growth rate for all expenditures.

HOUSEHOLDS MORE CAUTIOUS WITH DEBT

Households are borrowing more but the annual growth in household debt has been slowing over the last three years. The typical household had accumulated $57,400 of debt by 2001 and it seems that they added another $1,000 or so to this total in 2002.

NET WORTH DECLINES FOR FIRST TIME SINCE 1991

The continuous 10-year climb in the average net worth of Canadian households ended in 2001, as net worth slipped by $625 or 0.2% from the previous year. Indications suggest that a further drop is likely in 2002.

FOCUS ON THE IMPROVING FINANCIAL SITUATION OF FEMALE LONE-PARENTS

Several indicators suggest that female lone-parents are experiencing improved financial conditions. The poverty rate fell from 49% in 1996 to 34% in 2000. It seems that much of the gains have come from greater participation in the paid job market.

Average family incomes after income taxes and transfer payments improved by a healthy 3.0% in 2000 (the latest available) and set another new record at $54,725. This was the fifth consecutive annual improvement and the third new record high. This average family income is up by about $5,700 or 11.6% from the 1991 levels.

Among unattached individuals, average incomes after transfer payments and income taxes increased by 2% in 2000. This increase was the fourth in a row and the second new record high and represented an increase of 8.4% from 1991. See Appendix A for a closer look at the biggest winners … and yes, those who are falling behind or just staying even.

The biggest gains in 2000 were among;

• female lone-parent families (+8.4%) (more on this group near the end the report)
• male lone-parents (+7.4%)
• non-senior unattached males (+5.7%)
• and families living in Alberta (+5.7%)

A few groups suffered income declines or were stagnant in 2000;

• senior unattached males (-3.1%)
• non-senior females (-2.0%)
• one-earner couples without children (-1.7%)
• one-earner couples with children (-0.5%)
• and families living in British Columbia just stayed where they were in 1999.

Over the longer-term period, from 1991 to 2000, all the groups in appendix A, except one (other senior families) experienced improvements in after income tax and transfer payment incomes.

• The biggest gains over the 1991 to 2000 period were experienced by female lone-parents (+26.5%), male lone-parents (+19.2%), the richest 20% of families (+16.3%), families living in Ontario (+15.4%) and two-earner married couples with children (+14.2%).
• The smallest gains were among families living in British Columbia (+4.3%). In 1991, family incomes in Alberta were only $232 above those in British Columbia but this advantage jumped to over $4,000 by 2000.

The major flows that make up family incomes are outlined in table 1 below.

Average incomes earned in the market (from employment and self-employment, investments and private retirement income, etc) increased by a hefty 4.5% in 2000. More up-to-date indicators suggest the rate of increase for market incomes may have slowed in 2001. In contrast, the renewed and outstanding job growth numbers experienced in 2002 point to strong market income growth again in 2002.

Government transfers to families (Employment Insurance, child tax benefits, CPP/QPP, Old Age Security, etc) dipped significantly for the fourth consecutive year. The reduction in unemployment provided much of the impetus behind this decline.

Income taxes jumped by 6.6% in 2000, following a rare decline during the previous year. Over the 1991 to 2000 period, however, income taxes rose by 12.1% or by less than the growth in market based earnings.

It may be a surprise to some, but the longer-term trend has been marked by a relatively stable ratio (just below 20%) of income taxes payments as a percentage of total money incomes. In contrast, government transfer payments have continued to shrink as a percentage of total money incomes.

There are a few different ways that families can increase their incomes. Workers can get a raise, they can switch to higher paying jobs, they can work more hours or more family members can work outside of the home.

The reality is that the pay hikes that most workers have received have not kept up with inflation. In real terms, average hourly earnings have been on a slow downward slide for about seven years and the same trend continued through 2002. In terms of purchasing power, the typical worker earned 21 cents less per hour in 2001 than in 1994. The number of hours worked per week per worker has remained relatively flat at 31.6 hours for the last three years.

The major reason that family incomes have risen over the last five years is that more family members have been joining the growing paid job market. The percentage of non-senior families, in which there are two or more earners, jumped from under 74% in 1996 to almost 79% in 2000.

Statistics Canada also calculates the amount that a low-income family falls short of their relevant low-income cutoff. This income shortfall for two-parent families with children is about $7,500 and has been near there during most of the last decade. The shortfall for married couples without children edged upwards from 1994 to 1999 and then declined a bit to $6,744 in 2000 and, as such, the 2000 shortfall was about 20% larger than in 1991. The shortfall for lone-parents dipped to $5,668 in 2000 compared to about $6,900 in 1991, for a reduction of 18% over the period.

In very aggregate terms, the total annual low-income (poverty) shortfall for all households combined now stands at about $10.6 billion. This compares to $9.9 billion in 1991 and $12.5 billion in 1996. This is the amount that would be required to raise the income of all low-income (poor) households by type up to their applicable low-income cutoffs. This estimate excludes any administrative costs that would be involved.

The aggregate shortfall is calculated by multiplying the number of households by type with low-income by the average shortfall for each type of low-income household.

In 1989, The Government of Canada committed itself to the elimination of child poverty by the year 2000. As seen earlier, some progress is underway. This has come through improved employment market conditions and changes to social programs. A lot more work needs to be done and should be done. Some 868,000 Canadian children continue to live in poverty. About 488,000 of these poor children live in non-senior two-parent families, 337,000 in non-senior lone-parent families and another 42,000 live with senior families.

The annual aggregate low-income poverty shortfall for all non-senior families with children is now about $2.8 billion. This compares to $3.4 billion in 1991 and the $4 billion level in both 1995 and 1996. Within families with children, the aggregate size of the problem has lessened for lone-parent families while the situation in two-parent families basically remains where it was in 1991. The aggregate low-income poverty shortfall for senior families with children is not included in this total.

How much is $2.8 billion? In 2000, it was equal to 0.3% of the total output in the economy, 0.5% of all consumer expenditures, 1.5% of all government current expenditures or 2.1% of corporate profits before taxes.

Several respected measures provide evidence that family incomes have become less equally distributed during the last decade;

Even though inequality is getting worse, there continues to be significant transfers of incomes from the top 60% of families to the 40% of families that are the worst off. This is done through the income tax system and government transfers.

• In the year 2000, the poorest 20% of families received, on average, $10,319 in various forms of government transfer payments while at the same time this group paid out, on average, $2,220 in income taxes. As such, the net gain for this group was $8,099, which was equal to 40.8% of this group's average income after transfers and income taxes. In 1991, the net gain was larger and was equal to almost 52% of incomes. It is interesting to note that income tax payments in 2000 for the poorest 20% of families doubled relative to 1991 and increased much faster than for any of the other four income groups.
• The lower-middle 20% of families had a net gain of $3,861 in 2000, which was equal to 11% of their after transfer and income tax incomes. This net gain was less than in 1991 in both dollar terms and as a percentage of income.
• The other three income groups all made net contributions. That is to say, their income tax payments were larger than their transfer receipts in both years. For all three groups, the net contribution was larger in 2000 than in 1991 in both dollar terms and as a percentage of after transfer and income tax incomes.
• In 2000, the largest net contributors were the richest 20% of families, which received $3,894 in government transfers and paid out $34,708 in income taxes for a net contribution of $30,814. The net contribution was equal to 29% of after transfer and income tax incomes and compares to 28% in 1991. This even bigger contribution should not be surprising since, as noted above, they were the only group to increase their share of the total income pie from 1991 to 2000.

Canadian spending per household advanced by another 1.3% in 2001, which marked a full decade of positive increases. In 2001, spending moved up in seven of the eight major categories listed in the following table. Quarterly estimates suggest that this upward trend persisted into 2002.

Some trends in spending seem to relate more to gender rather than incomes. A few of these are listed below;

• Male lone-parents with transportation expenditures in 2000 spent $8,067 or 1.7 times that of female lone-parents. Some 85% of male lone-parents owned a vehicle in 2000 compared to 65% for female lone-parents.
• Male lone-parents spent $3,872 on recreation in 2000 or 1.7 times that of female lone-parents.
• Senior men living alone spent $3,114 on transportation in 2000 or 1.9 times more than senior women living alone.
• Senior women living alone spent $1,236 on clothing and personal care in 2000, or 1.7 times more than senior men living alone.
• Senior women living alone spent only one-third of what men did on tobacco products and alcoholic beverages and two-thirds of what men did on games of chance.
• Men living alone and working full-time allocated 40% of their food budget to restaurants, which is almost twice the share for all households.

A few other notables include;

• For the 53% of households which had to pay health insurance premiums, the premiums rose to $790 or by 12% in 2000.
• For the 22% of households reporting air transportation expenditures in 2000, spending rose to $1,604 or by 15%.
• In 2000, senior couple families allocated about 6% of their expenditures to gifts of money and charity compared to 2% for all households.

Spending has risen more than incomes during both the last decade and during the last several years. This spending was financed by both reduced savings and increased borrowing.

In the early 1990s, households, on average, put away about $6,500 per year into savings. The level of saving dipped as low as $2,000 per year in 1999 and is estimated at roughly $2,700 in 2002.

Another indicator suggests that households are having difficulty saving money. In both 2000 and 2001, only 34% of all tax-filers who were eligible to contribute to RRSPs (Registered Retirement Savings Plans), did so. The other 66% did not contribute. In 1991, total contributions were equal to 29% of the total room available to tax-filers but this slipped to only 9% of the available room in 2001. This is in spite of the reality that RRSPs are widely viewed as one of the best short and long-term investments that families can make. Of those who did contribute, the median (half contributed more and half contributed less) contribution was only $2,600.

Households are borrowing more but the annual growth in household debt has been slowing over the last three years. The typical household had accumulated $57,400 of debt by 2001 and it seems that they added another $1,000 or so to this total in 2002.

Over the 1991 to 2001 period, the most rapid growth (+39%) in debt was in "other debt" (mainly lines of credit), followed by consumer credit (+35%) and mortgages (+19%).

After huge increases during most the 1990s, the ratio of total debt to annual incomes after transfers and income taxes has remained near 112% over the 1999 to 2002 period.

The new cautiousness of householders is evident in two other measures. The ratio of mortgages to the value of land and buildings actually declined a bit from 1999 to 2001 and the ratio of total debt to total assets increased very little. The only ratio that increased significantly was the ratio of consumer credit as a percentage of consumer durables, which jumped from 56% in 1999 to 59% in 2001.

The continuous 10-year climb in the average net worth of Canadian households ended in 2001, as net worth slipped by $625 or 0.2% from the previous year. Indications suggest that a further drop is likely in 2002.

The small shrinkage in net worth came as a result of decline in the value of financial assets led by Canada Savings Bonds (-2.5%) and for life insurance and private pension plans (-2.1%). The value of shares increased again in 2001, and did so in spite of the fact that stock values declined based on the major North American stock exchanges.

The value of real assets increased again in 2001, with similar advances (about 1.5%) evident in all three of the real asset categories.

Several indicators suggest that female lone-parents are experiencing improved financial conditions. These are listed below;

Additional details on Chart Sources

Charts 1, 2, 4, 5, 6, 8, 10 and 16 - Statistics Canada, Income in Canada 2000 (75-202-XIE).
Chart 3 - Statistics Canada, Cansim II.
Charts 7 and 9 - Calculations based on various numbers found in Income in Canada 2000 (75-202-XIE).
Charts 11 and 12 - Based on Statistics Canada, National Balance Sheet Accounts, (13-214-PPB), Income in Canada 2000 (75-202-XIE), Bank of Canada Weekly Financial Statistics (table E2) and author estimated household numbers for 2001 and 2002.
Chart 13 - Based on Statistics Canada, National Balance Sheet Accounts, (13-214-PPB) and National Economic Accounts.
Chart 14 - Based on Statistics Canada, National Balance Sheet Accounts, (13-214-PPB).
Chart 15 - Statistics Canada, Income in Canada 2000 (75-202-XIE) and The Labour force historical Review 2001 (71-F0004XCB).

Note: Household numbers for the years 1991 to 2000 are derived from Statistics Canada, Income in Canada, 2000. Household numbers for 2001 and 2002 are assumed to grow at the same percentage rate as in 2000.