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The Daily. Friday, February 22, 2002
Wealth inequality
1984 to 1999
Median net worth for all families rose about 10% from 1984 to 1999, but this
increase was not shared equally
by all types of families. For instance, the median net worth of young couples
with children fell 30%,
according to a new study based on the 1984 Assets and Debts Survey and the 1999
Survey of Financial Security
(SFS).
The sharp decline in net worth of young families with children during this
15-year period suggests that some
may have relatively few financial assets to absorb the shock of economic
stresses such as the loss of a job.
Net worth is the amount an individual or family would clear after selling all
assets, such as residences,
stocks and retirement savings plans; and paying off all debts, such as
mortgages, car loans and student loans.
The terms net worth and wealth are interchangeable.
In 1984, young families with children - that is, those in which the major income
recipient was aged between 25
and 34, had a median net worth of $44,000, according to the Assets and Debts
Survey. In 1999, the SFS showed
that this net worth had declined 30% to $30,800.
Some of these families were even worse off. The proportion of this group with no
net worth - that is,
their total assets were less than or equal to their total debts - rose from 10%
in 1984 to 16% in 1999.
Some factors may have contributed to the decline in median wealth of these young
families, although their
relative importance is unknown. First, young people now stay in school longer
before entering the labour market
full-time than did their counterparts in the mid-1980s. This reduces the number
of years during which they are
able to earn substantial income and accumulate savings.
As well, young men's real earnings were lower in the late 1990s than at the
beginning of the 1980s.
To make the concept of wealth comparable between the two surveys, the value of
the following items was
excluded from the 1999 data, since they were not included in the 1984 survey:
contents of the home,
collectibles and valuables, annuities, Registered Retirement Income Funds and
pension plans.
On that basis, the SFS showed that the median net worth of Canada's estimated
12.2 million families in 1999 was
about $64,600. One-half of all families had net worth more than this figure, and
half had less.
The SFS is the first asset and debt survey conducted by Statistics Canada since
1984. Covering about 16,000
responding households, the survey collected information on the assets and debts
of families from May to July
1999. It obtained data on the value of all major financial and non-financial
assets, and on the money
owing on mortgages, vehicles, credit cards, student loans, and other debts.
Wealth inequality rises
The study showed that wealth inequality increased among various types of
families between 1984 and 1999.
While young families' median wealth fell markedly, other groups of families
enjoyed substantial increases in wealth - for example, families in which the
major
income recipient had a university degree, or was aged 65 and over.
In 1999, families in which the major income recipient had a university degree
had a median net worth of
$118,000, up 18% from 1984. Similarly, during this 15-year period, median net
worth increased 56% to
$126,000 among families in which the major income recipient was 65 or older.
The survey ranked families into 10 deciles from the lowest net worth to the
highest. In the bottom three
deciles of wealth distribution, median wealth fell, but in the top three deciles
it rose at least 30%.
Furthermore, only families in the upper two deciles of the scale increased their
share of total net worth.
Wealth inequality did not rise uniformly in all types of families. It increased
much more among couples with
children and lone-parent families than among unattached individuals or couples
with no children.
Recent immigrants lose ground in net worth
Families whose major income recipient was a new entrant to the labour market -
that is, a young individual or a
recent immigrant - lost ground relative to older families.
Median wealth fell roughly 25% among immigrant families who had been living in
Canada for less than 10 years.
However, it advanced among Canadian-born families and among immigrant families
who had been living in Canada
for 20 years or more.
Among families whose major income recipient was aged between 25 and 34 (with or
without children), the
decline in median wealth was unlikely to be due solely to a decrease in median
after-tax income. While median
wealth dropped 36%, median after-tax income declined only 7%.
In contrast, the substantial increase in median wealth of the elderly likely
reflected a combination of
factors such as: possibly larger inheritances received by families in 1999
compared with those in 1984; and
higher income from private pensions, the Canada and Quebec Pension Plans, and
Old Age Security.
Aging affects wealth distribution
The aging of the population from 1984 to 1999 had two important effects: it
tended to increase the average
wealth of Canadians and to reduce wealth inequality.
>From 1984 to 1999, average wealth of all families gained 37%. Among families
other than those in the top
5% of the wealth distribution, average wealth rose 28%.
Because older families have had more time than their younger counterparts to
accumulate savings, part of the
increase in average wealth observed from 1984 to 1999 could be due to the aging
of families. Indeed, the
study showed that 30% to 39% of the growth in average wealth could be attributed
to this aging.
The aging of the population also affected wealth inequality. It reduced the
relative importance of young
families - who have lower-than-average wealth - and increased the relative
importance of families close to
the middle of the wealth distribution. As a result, it tended to make the
distribution of wealth more equal.
In the absence of the aging, wealth inequality would have increased more than it
actually did.
Furthermore, wealth inequality rose within given age groups, thereby indicating
that factors other than
changes in the age structure affected the wealth distribution from 1984 to 1999.
Possible reasons for growing wealth inequality
The reasons for rising inequality are now unknown. While the data do not allow
their quantification,
several forces may have widened the gap between rich families and their poorer
counterparts.
First, the booming stock market of the 1990s likely contributed to the rapid
revaluation of financial
assets, which are held predominantly by families at the top of the wealth
distribution.
Second, easier access to credit and changes in preferences may have induced some
less-wealthy families
to accumulate more debt to finance consumption, thereby decreasing their net
worth.
Third, larger contributions to Registered Retirement Savings Plans by families
in the middle of the wealth
distribution may have widened the gap between them and poorer families.
Fourth, differences between less-wealthy and wealthy families in the growth of
inheritances and transfers
from parents to their adult children (for example, parental financing of
education or of the down payment
on a house) may also have played a role.
The research paper The evolution of wealth inequality in Canada, 1984-1999
(11F0019MIE, no. 187, free) is now
available on Statistics Canada's Web site (www.statcan.ca). From the Our
products and services
page, choose Research papers (free), then Social conditions.
An abridged version is available in the February 2002 online edition of
Perspectives on Labour and Income,
Vol. 3, no. 2 (75-001-XIE, $5/$48), which is also available today. For more
information, contact Henry
Pold (613 951-4608).
A print version can also be ordered from H
élène Lamadeleine (613-951-5231).
For more information, or to enquire about the concepts, methods or data quality
of this release, contact René
Morissette (613-951-3608), Business and Labour Market Analysis Division.
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