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Personal finance and household finance

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After eight years of steady growth, average after-tax income for families of two people or more levelled off in 2002 and stood at $59,900 in 2003. That compares with $51,200 in 1993.

Income levels in 2003, however, varied significantly among different family types. For example, married elderly couples earned about $42,800 in after-tax annual income, whereas two-parent families with children pulled in an average after-tax income of $69,400.

Single-parent families have seen their incomes rise as well. From 1996 to 2001, the income gains for lone-parent families headed by women were among the strongest, primarily because of rising employment rates among single mothers. But despite those increases, the average single mother made an after-tax income of $30,000 in 2003, significantly less than the average single father.

Indeed, families headed by single women were more likely to be among the 726,000 Canadian families living in low income in 2003. Of all families, 8.4% had low incomes in 2003, well below the peak of 12.1% in 1996.

An estimated 843,000 children aged 17 and under, or 12.4% of the total, were living in low-income families in 2003, compared with more than 1.3 million in 1996. The rate was unchanged from 2002, but well below the peak of 18.6% in 1996.

Helping lower-income households

Government transfers, such as Employment Insurance, Old Age Security and child tax benefits, help to reduce income inequality because they moderate income differences between rich and poor. For low-income households, these transfers are important: 20% of families earning the least receive about half their income from transfers. By contrast, transfers represent only 3% of total income for the richest 20% of households.

Taxes are also used to moderate income differences. Higher incomes mean higher income taxes: the 20% of Canadian families earning the most paid an average $35,300 of income taxes in 2003, which represents about one-quarter of their total income. On the other hand, families that earned the least paid about $1,100 in income taxes, or about 5% of their total earnings.

How much money families make is determined in part by where they live. Nationally, the median total income for couple families fell 0.5% to $62,600 in 2003. As in previous years, average after-tax income in 2003 was highest among Ontario families, at $66,500, followed by those in Alberta, who averaged $64,900.

Families in Newfoundland and Labrador earned the least, at $47,100. But the highest proportion of low-income households resides on the other side of the country, in British Columbia.

At the city level, couple families in the census metropolitan areas of Oshawa, Ottawa–Gatineau and Windsor have consistently recorded the highest median incomes over the years. In 2003, Oshawa’s couple families came out on top for the first time, with a median income of $80,300. The median income for couple families in Ottawa–Gatineau, which ranked first in the three previous years, dropped slightly to $79,600. In 2003, the only other census metropolitan areas that posted increases in median family income for couple families were Kingston, Saint John and St. John's.

Spending more, owing more

Household spending patterns remained virtually unchanged from 1997 to 2004. Most of the household budget went to personal income taxes (20%), followed by shelter (19%), transportation (14%) and food (11%). Households in the lowest income group allocated the highest percentage of their budgets to food, shelter and clothing.

While Canadians have seen their paycheques steadily grow, they have been spending them at an even faster pace. Incomes increased by 10% from 1997 to 2003, whereas household spending grew more than twice as fast. In 2001, almost one-half of all households were spending more than their pre-tax income.

Over the past 14 years, lower interest rates and a continuing demand for housing and goods have encouraged a significant run-up in household debt. By 2003, for every $100 of disposable income, Canadian households had on average $103 in debt.

Low-income earners struggled the most. Nearly two out of three households earning less than $20,000 outspent their income, and they did so by an average of 54%. By contrast, only 15% of households with incomes $100,000 and over outspent their income. The toll has been high. In 2004, just over 84,000 Canadians declared bankruptcy, a 57% increase from 1994.

Less money saved, but higher net worth

Growing expenditures and debts mean that less and less money is left over for savings. For each dollar of income earned in 1982, Canadians spent 63 cents on personal consumption and 20 cents on taxes, setting the remaining 17 cents aside for saving.

In 2001, by comparison, for every dollar of income, 71 cents were spent and only 3 cents were saved. Indeed, the number of households that saved money in 2004 fell to its lowest level since the 1930s.

However, a large increase in the net worth of Canadian households has helped to offset their growing debt, higher spending and lower savings. From 1990 to 2004, the value of household financial assets, such as investments and pension plans, more than doubled.

During the same period, the value of non-financial assets, such as homes and consumer goods, almost doubled. Residential real estate alone accounts for $1.6 trillion of Canadians’ total net worth. Other household non-financial assets that have contributed to the big jump in net worth include vehicles, furniture and appliances.