The gap between the richest and poorest Canadians is growing, but the reason why may surprise you.
Driving the news: The wealth gap between the top 20% of earners and the bottom 40% widened by 1.1 percentage points in the first quarter of the year, the fastest pace on record, per new Stats Canada data.
- The top 20% of earners in Canada currently hold 67.8% of the country’s net worth, compared with the bottom 40% holding 2.7%, a 65.1 percentage point gap.
So, why are the top 20% doing so well? One explanation is they have more exposure to the stock market and less to real estate.
- The value of the average home is down 7.6% since this time last year, while the S&P500 is up 16% this year.
Zoom out: That dynamic has also hit younger households hard, as they typically have had less time to build up a diversified portfolio of assets.
- Households aged 35 years and under derive ~88% of their wealth from real estate (usually their home), compared with ~40% for households aged 65 years and older.
Why it matters: The widening wealth gap highlights the importance of real estate to low- and middle-income Canadians. Those of us who don’t own property (ahem) may want to see home prices collapse, but that would come with a massive reduction in wealth for many people who don’t own much beyond the roof over their head. —SB