Measuring voluntary
interhousehold  transfers in Canada

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By Jackson Chung

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• Defining interhousehold transfers
• Loans and repayments
• Regular versus irregular
• Voluntary versus involuntary
• Family member versus any person
• Inside country versus outside country
• Deduction of interhousehold transfers from donor's disposable income
• In-kind payments and expenditure transfers
• Size and trend of transfers
• Relationship with income and wealth
• Interhousehold transfers as a proportion of income
• Summary
• Data source and definitions

For the most part, those who live together in households provide for their own well-being. However, there are some situations in which people in one household monetarily support people in other households. Such situations would include parents supporting students who are away at school, immigrants sending money to family members in their home countries or someone helping out a friend who has fallen on hard times. Each of these examples represents an interhousehold transfer.

Interhousehold transfers are a flow of economic resources between households. They are money, goods or services that a household sends to other households with the intention of supporting the recipients' current consumption, without an expectation of repayment. As a result, the recipients' economic well-being is improved by the additional economic resources from the donor.

Data indicate that the overall magnitude of interhousehold transfers is similar to social assistance and about double the level of alimony and other court-ordered payments.¹ Despite their size and potential impact on the economic well-being of Canadian households, few studies have been published on interhousehold transfers and those published have concentrated on immigrant remittances abroad (Houle and Schellenberg 2008).

This article discusses the concepts and measurement issues related to voluntary interhousehold transfers in Canada (see Data sources and definitions). It starts by examining the conceptual issues of such transfers. It then estimates the size of and recent trends in interhousehold transfers in Canada, followed by an analysis of the relationship between the value of interhousehold transfers and total household income. A summary and discussion of the results completes the article.

Defining interhousehold transfers

Despite efforts to integrate transfers into a comprehensive framework of household income (Canberra Group 2001), no standard, internationally recognized measure of interhousehold transfers currently exists. Transfers thus remain one of the most difficult aspects of measuring household income. What should or should not be included in the definition of income involves judgments about various aspects of the transfers. While some statistical agencies like Eurostat (Eurostat 2007) and the Australian Bureau of Statistics (Australian Bureau of Statistics 2006) closely follow the Canberra Group's recommendations, others adapt them to suit their own needs. This is perhaps not surprising given the number of concepts involved in defining interhousehold transfers.

Efforts to define interhousehold transfers must take a number of factors about the donor household, recipient household and nature of the transfers into account. The specific aspects to be addressed include whether the transfers are regular or irregular, voluntary or involuntary; whether they are between family members or others; whether they cross international boundaries or should be deducted from the donor's disposable income; and whether they should include in-kind (non-monetary) transfers, loans or repayments.

Loans and repayments

One of the defining characteristics of an interhousehold transfer is that it is given with no expectation of repayment. The International Conference of Labour Statisticians thus recommends that loan repayments be excluded from the definition of interhousehold transfers. The assumption is that a loan and subsequent repayment would result in no net transfer from one household to another (International Labour Organization 2004).

Regular versus irregular

This characteristic of a transfer relates to a recipient's likely use of the funds. If the funds are spent on goods and services for immediate or near-term use, they are considered an addition to income. If they are saved or invested in capital, they are an addition to wealth. The Canberra Group suggests that current transfers should be amounts that are comparatively small, often made regularly and relied upon by the recipients (Canberra Group 2001). Meanwhile large, unexpected and one-time transfers are considered capital transfers since the money is more likely to be saved than spent. However, it can be argued that some irregular or large transfers conform to the definition of current transfer, as long as the funds are used for final consumption in the same period. For example, households can provide occasional financial support to non-household members in need, like the temporarily unemployed. Thus it is very difficult in practice to use rules of thumb on the regularity and amount of transfers to determine whether they are capital or wealth transfers. It would be preferable to ask respondents directly whether the transfer was used for current consumption.

Voluntary versus involuntary

In this article, a voluntary interhousehold transfer is defined as not legally enforced, direct cash payments between households. The amount of interhousehold transfers sent by donors is not deducted from donors' income in the analysis of economic well-being and household income. This paper's analysis is limited by the lack of a data source that combines detailed information on consumption and the amount of interhousehold transfers received, and no data exist on interhousehold transfers received from non-family members.

While some interhousehold transfers are mandatory—that is, the result of a legally binding agreement—others are voluntary. For survey purposes, the Canberra Group suggests that legally binding interhousehold transfers, for example alimony and child support payments, should be considered regular and predictable, as there are legal consequences to senders who fail to remit these payments. In comparison, voluntary interhousehold transfers can be regular or irregular, subject to whether the interhousehold transfers are made regularly and can be relied upon by the recipients (Canberra Group 2001).

To track involuntary transfers, like alimony and child support payments by court order or written agreement, Statistics Canada has been using tax data, and the receipt of these transfers has been accounted for in the recipient's total income. In addition, several studies have investigated the payment characteristics of alimony and child support, and how recipients have benefited from these payments (Galarneau 1992 and Robinson 2009). However, the voluntary transfers people receive were not measured until questions on interhousehold transfers were introduced in the Survey of Labour and Income Dynamics (SLID) in 2006.

Family member versus any person

One would expect that most interhousehold transfers are received by donors' family members, and some Statistics Canada surveys only ask questions on interhousehold transfers between family members. However, non-family members would also benefit from interhousehold transfers with an increased ability to consume. Thus a comprehensive survey instrument would include interhousehold transfers not only between family members, but also between any persons not living with the respondent.

Inside country versus outside country

Some households send interhousehold transfers to relatives outside Canada. Since these transfers represent a significant source of foreign revenue in developing countries, tracking remittances is essential in order to understand the macro-economies of these countries (Houle and Schellenberg 2008).

Deduction of interhousehold transfers from donor's disposable income

There are at least three alternate views on how the deduction of interhousehold transfers from a donor's disposable income should be treated. First, to avoid double-counting at the aggregate level, the Canberra Group recommends that that the donor deduct the transfer from his or her disposable income (Canberra Group 2001). Alternately, Becker (1974) suggests that the relevant characteristics of a person's social environment,² like the welfare of a family member, can be important to an individual's utility function, and, to some extent, his or her economic well-being. From this viewpoint, sending interhousehold transfers to improve the economic well-being of a recipient can provide a positive utility to the donor. Therefore, not deducting the amount of interhousehold transfers from the donor's disposable income might be suggested, since it provides the same utility to the donor as would other spending. A third opinion differentiates between compulsory and voluntary transfers, and recommends only deducting the amount of interhousehold transfers with a compulsory or quasi-compulsory nature. This was adopted in a resolution of the Seventeenth International Conference of Labour Statisticians (International Labour Organization 2004). However, what qualifies as a quasi-compulsory interhousehold transfer remains subject to debate.

In-kind payments and expenditure transfers

In-kind payments in the form of gifts and services provide economic benefits to recipients and, in theory, should be included as income. Unlike monetary transfers, there is no consistent and accurate method of valuation for measuring in-kind payments. The Seventeenth International Conference of Labour Statisticians suggests that most operational definitions of income exclude such transfers until widely accepted methods for valuing them are available (International Labour Organization 2004). Currently, most in-kind payments are excluded from Statistics Canada surveys.

Size and trend of transfers

In 2008, Canadian households received $8.5 billion in voluntary interhousehold transfers from other households (Chart B). This is twice the dollar amount of court-ordered alimony and child support payments received by Canadian households. It is also comparable in size to major government social programs, like social assistance and child tax benefits.

Both the number and proportion of households that sent transfers increased between 1998 and 2008 (Table 2). The number of households that sent voluntary interhousehold transfers increased by 51% from 3.6 million households in 1998 to 5.4 million households in 2008. The proportion of households that sent transfers increased from 31% to 41% in the same period.³

Although year-to-year changes are quite volatile,⁴ the total amount of interhousehold transfers trended upwards from 1998 to 2008 (Chart C). After adjustments were made for inflation, Canadian households were found to have sent 46% more in voluntary interhousehold transfers in 2008 than 1998 (Statistics Canada 2011). In comparison, real household income increased 33% and charitable donations increased 32% over the same period.

Voluntary interhousehold transfers thus represent a sizeable flow of funds between households and an important addition to income in many recipient households.

Relationship with income and wealth

SLID's information on interhousehold transfers sent and received provides the opportunity to examine transfers in relation to the income of donors and recipients.⁵ Similarly, the wealth of donors and recipients can be studied using the 2005 Survey of Financial Security (SFS). Since these two surveys likely under-represent smaller transfers (see Data sources and definitions), the results are more indicative of large transfers than small transfers.

Both the incidence and amount of voluntary interhousehold donations increased with income (Table 3). About 7% of all households in the bottom quartile sent such transfers, with a median amount of approximately $1,500. More households sent voluntary interhousehold transfers as household income increased. The donation rate reached 18% in the top income quartile and the median donation more than doubled to $3,500. The relationship between income and the receipt of interhousehold transfers was less clear. If it were the inverse of the donation pattern, the incidence and amount received would be highest in the bottom quartile and decline in each ascending quartile. Although the percentage of households receiving such transfers was highest in the bottom quartile, the incidence varied much less across quartiles than did the incidence of donation, and was higher in the top quartile than the middle two quartiles. Moreover, the median amount received was higher in the top two income quartiles than the bottom two.

Interhousehold transfers generally flow from more economically well-off households to less economically well-off households (Chart D).⁶ Approximately 80% of aggregate interhousehold transfers sent are from households with income or wealth above the median. Conversely, the vast majority of aggregate interhousehold transfers are received by households with income or wealth below the median. However, a slightly higher proportion of aggregate interhousehold transfers are received by households with income above the median than by households with wealth above the median.

Interhousehold transfers as a proportion of income

The size of interhousehold transfers in relation to the income of donating and recipient households is an indicator of the relative level of resources being transferred. The relative importance of the transfers would likely be greater for recipients than donators. Voluntary transfers have not been subtracted from the income of donors or added to the income of recipients in these calculations.

Among interhousehold transfer donors, the median household sent 3% of its household income (Table 4). Among all households that received such transfers, the median received an amount equivalent to 5% of its household income.

Most donors sent a relatively small portion of their household income as voluntary interhousehold transfers, with approximately four-fifths of donors sending less than 10%. However, a small number of donors (just under 2%) reported sending more than they earned in 2008. This small group of donors accounted for about 15% of the total value of voluntary interhousehold transfers in 2008.

Among recipients, approximately two-thirds of households reported receiving transfers equivalent to less than 10% of their household income. On the other hand, about 7% of all recipient households received transfers that were greater than their household income.⁷ The median ratio for households that received more than 100% of their household income was 3.2 times their household income. These transfers accounted for 37% of the value of voluntary interhousehold transfers received in 2008.

Summary

This paper examined the conceptual and measurement issues related to voluntary interhousehold transfers. Although international practice varies, both the Canberra Group (Canberra Group 2001) and the Seventeenth International Conference of Labour Statisticians (International Labour Organization 2004) recommended measuring and including both voluntary and involuntary interhousehold transfers in the definition of total income. Since 2006, Statistics Canada has been measuring both the voluntary and involuntary components of interhousehold transfers in a single survey. However, voluntary interhousehold transfers continue to be excluded from the definition of total income.

In 2008, the amount of voluntary interhousehold transfers received by Canadian households was twice the total value of alimony and child support payments. It is also in the same order of magnitude as some government transfer programs. Data indicate that both the incidence of transfers and total amount transferred increased substantially from 1998 to 2008.

Although the total amount transferred from donor to recipient households was fairly consistent across surveys, the estimated incidence of donations varied widely, ranging from 12% to 40%. Differing question sequences and treatment of non-response likely explain most of the discrepancy. A distributional analysis indicated that the Survey of Household Spending, the source of the 40% estimate, was much more likely to pick up small interhousehold transfers than the Survey of Labour and Income Dynamics and the Survey of Financial Security.

The incidence and amount of interhousehold donations increased with household income, with both more than doubling from the bottom to the top quartile. The incidence of transfer receipt varied much less by income quartile, with those in the bottom and top income quartiles more likely to receive transfers than those in the second and third quartiles.

Overall, donors sent a median of 3% of their income to other households, while recipients received a median transfer equivalent to 5% of their income. About 7% of recipients reported receiving transfers greater than their income. In addition, just under 2% of donors reported transferring more than their household income.

In summary, voluntary interhousehold transfers represent a sizeable flow of economic resources between households. A better understanding of the dynamics of such transfers would help provide a more complete picture of the economic well-being of households.

Data sources and definitions

Three separate Statistics Canada surveys—the Survey of Labour and Income Dynamics (SLID), the Survey of Household Spending (SHS) and the Survey of Financial Security (SFS)—measure voluntary interhousehold transfers, each survey measuring them somewhat differently.

SLID is carried out in the 10 provinces annually, and 70,000 individuals or from 26,000 to 28,000 households responded in a particular year. The questions on voluntary interhousehold transfers were introduced in 2006.⁸ In SLID they are defined as the amount of money sent or received by family members not living in the respondent's household, plus regular bill payments paid on the recipient's behalf. From 2006 to 2008, between 791,000 and 880,000 households received voluntary interhousehold transfers, and between 1.4 million and 1.6 million households sent them in a particular year.⁹

The SHS collects data on annual household spending. It is carried out in all 10 provinces each year and in the 3 territories every second year. The number of households that responded varied from 13,900 to 17,200 between 1997 and 2007.¹⁰ The question on voluntary interhousehold transfers was not asked separately before 1998,¹¹ and it is not possible to identify the amount received with the SHS. A voluntary interhousehold transfer in the SHS is defined as a gift of money sent to any non-household member. From 1998 to 2008, between 3.6 million and 5.4 million households sent these transfers in a particular year.¹²SHS data make it possible for this paper to examine the trend of voluntary interhousehold transfers sent by Canadian households in the last 11 years. They also allow for the examination of the concept, definition and scope of such transfers, and their comparison with those in SLID and the SFS.

The SFS collects information on the net worth (wealth) of Canadian families, including assets, debts, employment, income and education. It is an occasional cross-sectional survey, most recently conducted in 2005,¹³ carried out in all 10 provinces, with approximately 5,300 economic families responding in 2005. The 2005 SFS asked questions on the amount of voluntary interhousehold transfers, and restricted the scope of senders and recipients to family members. According to that definition, 839,000 households received voluntary transfers in 2005, while 1.8 million households sent such transfers. SFS data allow for the examination of the relationship between the amounts of voluntary interhousehold transfers sent and received, and the net worth of economic families.

The purpose of each survey is different, therefore the information collected on interhousehold transfers also varies. For example, SHS data are a primary source of input for the Consumer Price Index while SLID is primarily concerned with household economic well-being. As such, the SHS requires detailed reporting of expenditure items (including transfers), while SLID respondents may give a best estimate.

Wording differences across surveys also contribute to differing estimates. The SHS measures 'money gifts' and the transfers have no usage restrictions, SLID measures money sent or received plus the regular payments paid on the recipient's behalf, and the SFS measures the money sent to support the living expenses of the recipients.

The surveys also define the scope of voluntary interhousehold transfers differently. While the SHS requires that respondents state the amount of money gifts sent to people who are not household members, SLID and the SFS measure the amount of money sent to or received from family members not living with the respondents. Thus SLID and the SFS exclude a greater portion of voluntary interhousehold transfers beyond the family relationship than the SHS does. A summary of interhousehold transfer information collected by each survey can be found in Table 5.

In terms of the number of donors that sent voluntary interhousehold transfers, the SHS has about three times as many households as SLID and the SFS, while total dollars sent are in the same order of magnitude for all three surveys (Table 1). With regard to recipients, SLID and the SFS have similar numbers of households receiving voluntary interhousehold transfers, but the total amounts received by households in SLID are twice those in the SFS.

A distributional analysis indicates that the SHS is likely better at identifying smaller transfers than the other surveys. The median interhousehold transfer sent is $2,200 in SLID, $2,000 in the SFS and $500 in the SHS (Chart A). In the SHS, 40% reported sending voluntary interhousehold transfers compared to less than 15% for SLID and SFS respondents. However, the top 10% sent similar donations in all three surveys.

All three curves also show that most dollar amounts for voluntary interhousehold transfers are sent by a small percentage of households—less than 5% of all households sent over $5,000 in the reference year. This means the total dollar estimates for such transfers are disproportionately affected by a small number of households. It is possible that some of these households could be misreporting inheritances and bequests as current transfers rather than capital transfers. A maximum limit of $200,000 is set for interhousehold transfers in the SLID questionnaire. Meanwhile, no such limitation exists in the SHS or the SFS.

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Notes

1. Based on calculations from the 2008 Survey of Labour and Income Dynamics.
2. As suggested in his concept of 'social income,' defined as the sum of a person's own income and the monetary value to him of the relevant characteristics of others (Becker 1974).
3. Bootstrap weights for the SHS have been applied for the available reference years.
4. Tests indicate that the volatility is concentrated at the top of the distribution. The increase over the period is similar in magnitude, but smoother, when the top 1%, 5% and 10% of remitters are trimmed.
5. The SLID income concept includes involuntary transfers like alimony and excludes voluntary transfers.
6. SFS figures are for economic families, as household-level figures are not available.
7. Voluntary interhousehold transfers with amounts over 100% of the recipient's household income may indicate a strong dependency on money sent by non-household members or capital transfers misreported by respondents.
8. SLID has had data on alimony and child support payments since 1998.
9. Bootstrap weights developed by Statistics Canada for SLID have been applied for the measurement of variance and standard errors in the 2006, 2007 and 2008 Survey of Labour and Income Dynamics.
10. The sample size was reduced by 28% in 2008.
11. Before 1998, the question on voluntary interhousehold transfers was combined with the question on alimony, separation allowance and child support payments.
12. Bootstrap weights developed by Statistics Canada for the SHS from 2002 to 2008 have been applied for the measurement of variance and standard errors.
13. The information on assets, debts and net worth are based on data collected in the 2005 reference period. The income-related questions are based on 2004 data.

References

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Becker, Gary S. 1974. "A theory of social interactions." Journal of Political Economy. Vol. 82, no. 6. November–December. p. 1063-1093. (accessed April 28, 2011).

Canberra Group. 2001. Expert Group on Household Income Statistics: Final Report and Recommendations. Ottawa. The Canberra Group. 218 p. (accessed April 28, 2011).

Eurostat. 2007. Comparative European Union Statistics on Income and Living Conditions: Issues and Challenges (EU-SILC) . Methodologies and Working Papers. Proceedings of the EU-SILC Conference (Helsinki, 6-8 November 2006). Luxembourg. Office for Official Publications of the European Communities. 380 p. (accessed April 26, 2011).

Galarneau, Diane 1992. "Alimony and child support." Perspectives on Labour and Income.Vol. 4, no. 2. Summer. Statistics Canada Catalogue no. 75-001-XPE. Statistics Canada. p. 8-21. (accessed April 26, 2011).

Houle, René and Grant Schellenberg. 2008. Remittance Behaviours Among Recent Immigrants in Canada. Statistics Canada Catalogue no. 11F0019M – No. 312. Analytical Studies Branch Research Paper Series. Ottawa. 41 p. (accessed April 26, 2011).

International Labour Organization. 2004. "Resolution 1: Resolution concerning household income and expenditure statistics." Final Report: Seventeenth International Conference of Labour Statisticians. November 24-December 3, 2003. Geneva. p. 43-57. (accessed April 28, 2011).

Robinson, Paul 2009. Child and Spousal Support: Maintenance Enforcement Survey Statistics 2008/2009. Statistics Canada Catalogue no. 85-228-X. Ottawa. (accessed April 26 2011).

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Author

Jackson Chung is with the Income Statistics Division. He can be reached at 613-951-4005 or at perspectives@statcan.gc.ca.