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The Current State of Canadian Family Finances

2006 Report

PDF Format

by Roger Sauvé
People Patterns Consulting
(2007)

TABLE OF CONTENTS

• INTRODUCTION AND TECHNICAL NOTE
• HIGHLIGHTS OF THE 2006 REPORT – February 2007
• The real issue – The social impacts of financial stress
• Need for more consumer education
• I really did give at the office! … real hourly wages still slipping in 2006
• Salaried persons do just a bit better
• Even so … household incomes spurted ahead in 2005 and 2006
• … and so has spending
• Family incomes rise during first part of decade
• The 2004 income tax load falls to lowest level in two decades
• Not getting there! … Women still earn 70% of what men do at full-time, full year jobs
• Women nearing equality … for insolvencies
• WOW! Couples with children and only one earner are five times more likely to live in poverty than two-earner couples
• Less poverty for single mothers … more join the paid work force
• “The truth is out there” … more and more inequality
• About 1.1 millionaire households BUT over 2 million with less than $5,000
• How far will $400 go? Poorest households at greatest risk
• Ka-ching! Ka-ching! Can you hear it ring! – Debt ratio hits 127%
• Insolvencies remain near record levels
• ON AVERAGE … we are getting richer
• SPECIAL FEATURE - A look at spending patterns 1999 to 2004
• Part 1 – Need or greed?
• Part 2 – Shifts by age group
• APPENDIX A - Average incomes of families and unattached individuals, low-income gap and share of incomes after transfers and income taxes
• APPENDIX B - Families and unattached individuals with low-incomes (poverty) after transfers and income taxes
• APPENDIX C - Major components of average net worth per household based on market value in constant 2004$
• ENDNOTES AND SOURCES

INTRODUCTION AND TECHNICAL NOTE

We are back again. This eighth annual report updates the current state of family and household finances up to the year 2006. The report examines incomes, spending, savings 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 the whole picture about how families are doing financially. This report has become a source document for both the general public and researchers and some of our charts are now included in textbooks.

Families are the main focus of this report but the latest Statistics Canada family income indicators only go to the year 2004. More timely information is available for the total personal sector and this data is used to provide many of the estimates for all households up to the year 2006. Most of the 2006 estimates are based on the first 9 to 10 months of the year. Households include both families and unattached individuals. About two-thirds of households are family households and thus the recent trends for households provide a good “directional” guide to what is happening for families. Estimates for personal disposable incomes and family incomes are after government transfers and after income taxes.

For ease of understanding and to make the results more relevant, all measures have been converted to a per-household or per-family basis. In this report, all dollar estimates (except for the special feature) are in 2004 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. Inflation is measured using the consumer price index. The measures incorporate updates and any recent revisions by Statistics Canada.

This year, most of the analysis relates to the period 1990 to 2006, with special emphasis on the time period that is labeled “so far this decade” and the latest year available depending on the data series. The year 1990 was chosen as the beginning year in order to highlight longer term changes. The text tables and the appendices provide the percentage change over the entire period, for the period from 2000 to 2004 and for 2004. Readers are urged to examine the Appendix Tables A, B and C at the back to get a more detailed perspective of the changes experienced by families and households.

Almost all of the background data comes from Statistics Canada. The author did many additional calculations. Any errors and omissions are the responsibility of the author.

Roger Sauvé, People Patterns Consulting, can be reached at 613-931-2476, Email (peoplepatternsconsulting@sympatico.ca), or at his Website (www.peoplepatternsconsulting.com).

HIGHLIGHTS OF THE 2006 REPORT – February 2007

• SOCIAL IMPACTS OF FINANCIAL STRESS – Insolvency is only one indicator of stress. Credit card debt is now being used as a “safety net’ and to make “ends meet’. Debt stress is now part of the medical lingo. Financial problems also affect the work place, as workers spend a lot of work time dealing with their problems.
• I REALLY DID GIVE AT THE OFFICE – Real hourly earnings of employees paid by the hour are still slipping. Salaried people are doing just a bit better. Combining both types of workers, real earnings are up by about 25 cents since 1991. Continued employment growth and a few special payouts supported household incomes in 2005 and 2006.
• SECOND EARNERS COMING THROUGH IN RECORD WAY- In 2004, the second earner among married couples with children brought in $19,500, the largest ever contribution. Couples with children and only one income earner are far more likely to live in poverty … five times more likely.
• NOT GETTINGTHERE – Women working at paid jobs on a full-time, full-year basis still earn 70% of what men do … basically unchanged for over a decade. Women, especially older women, are suffering through a growing share of consumer insolvencies. Female lone-parents have made positive strides, but there is still a long way to go in reducing poverty among these families.
• GROWING INEQUALITY – The richest 20% are getting a growing share of both the income pie and the wealth pie. The rest are either getting a smaller piece or just holding on. The poorest 20% have, on average, only $400 stashed away for a rainy day. There are now 1.1 million millionaire households in Canada.
• KA-CHING! DEBT KEEPS CLIMBING – Debt loads now stand at 127% of incomes … another new record. Thanks to rising real estate and stock market advances, debt is supported by growing assets. As such, the financial institutions seem to be covered. Many individuals and families are not and insolvencies remain high. The risk of insolvency is soaring for the 65+ crowd.
• MOSTLY NEED AND NOT GREED – A special look at spending concludes that for many households, much of the strain on finances has been due to increases in the costs of many basic necessities that far outstripped relatively flat incomes. For these households, the tendency to save less and borrow more may have been due more to need rather than to greed.

The real issue – The social impacts of financial stress

We usually see little discussion, beyond insolvencies, of the impacts of rising debt loads and fragile family finances. This year, we have made the time and found some space to expand on this discussion.

For those with financial problems, it is difficult to identify whether excessive debt causes the financial difficulties or if it is the financial difficulties that are the root causes of excessive debt … or it could be a bit of both.

A recent review of the international literature by this author and professional librarians uncovered many social, psychological, health and family impacts of debt and/or weak financial situations. This is a short list of some of our findings. These are either quoted directly or paraphrased.

• Debt is now so pervasive that credit card debt is increasingly viewed as a “safety net” against negative eventsⁱ. Many people with easy credit access now believe that there is no real need to set funds aside for a rainy day … they can just charge it or get a cash advance.
• Many people are using debt to make ends meetⁱⁱ. They end up being perpetually indebted and constantly being behind the financial eight ball. This, however, is often viewed simply “as just part of living”.
• One American article indicates that the term “debt stress” has now entered the medical lingo and it is a symptom of too much borrowingⁱⁱⁱ.
• The accessibility of new forms of financial access is leading to “financial infidelity” where partners hold secrets about their financial habits. This often produces feelings of blatant betrayal to the other partner and leads to marital problems^iv.
• Shame is a common theme surrounding debt problems. The list of psychological impacts also include blame, stress, worry, feeling trapped, anger, loss of control, disappointment, loss of sleep, irritability, discomfort, suicidal thoughts and others^v.
• A survey ^vifound that 20% of Americans worry about debt “most or all of the time”.
• Students who are identified as having high financial concerns feel more tense, anxious or nervous, more criticized by other people and find it more difficult getting to sleep or staying asleep than students with low financial concerns^vii.
• Medical residents have high debt loads with 36% indicating that they have “extreme” levels of stress from their financial situation. Almost one in four medical residents say that if they could do it again, they would choose another career outside medicine^viii.
• Graduates are forced to make compromises on some of life’s vital decisions because of the financial burden that they carry. The reality of being broke at 30 is not the life many envisioned for themselves^ix.
• Employees with debt problems often suffer from stress, which reduces their productivity. Some 24% to 50% of workers with financial problems spend an average of 24 hours per month of work time dealing with money matters^x.
• One interesting study found that smokers with more financial stress were less likely to quit smoking while ex-smokers with more financial stress were more likely to relapse^xi.
• A U.S. study ^xiiconcerning general financial knowledge had startling results. Over 400 new students in a university commerce program were asked 20 questions dealing with their basic knowledge of financial issues, which should be understood in order to function in everyday life. The students received an average mark of 35%.

The increased use of credit and less saving has provided continued support, at least in the short term, to consumption expenditures and the economy in general. If credit growth slows (and that would be a good idea) and if people start to save again (and that would also be a good idea), the economy might slip into recession. The burden of consumer debt may not spark a national crisis, but it will make any future recession far worse with effects on low and middle-income families that would be little short of disastrous.

Need for more consumer education

Consumer education is vital. There is a general perception that there is no solid educational curriculum available for use by individuals, households and families. This is so at a time when many financial institutions and other organizations are inundating the public with apparently easy and quick-fix solutions via direct mail, telephone solicitations and a soaring number of unsolicited emails. This supports a philosophy of “buy-now and pay-later” and if you can’t pay-later … then some other quick-fix solution will be available to pull you through. Each year, about 100,000 Canadians are not able to pull through … they go bankrupt.

Key life transitions represent an opportunity to focus on important issues, including debt and financial management. There should be household finance courses for young people in high school, for young people in post-secondary education, for young and older adults about to get married or re-married, for couples about to have children, for couples thinking about separation and divorce, for individuals who have lost their job, for middle-aged adults who have neglected to plan for their retirement, for people who are just a few years away from retirement, for people who are newly retired, and for any others who are leaving or entering new stages of life.

I really did give at the office! … real hourly wages still slipping in 2006

One of the key indicators that we have been tracking in recent reports has been the hourly rate of pay for employees who are paid by the hour. In last year’s report, we found that the real hourly wage had only increased by a dime since 1991, which suggested the caption Can you spare a dime? This update suggests that the situation worsened again in 2006 as earnings growth among the hourly paid lagged behind inflation for another year. Based on the estimate for 2006, hourly paid employees now earn a few cents less than in 1991. One might revise the caption to read; I really did give at the office. About 54% of all employees are now paid by the hour … up from 48% of all employees in 1991.

Salaried persons do just a bit better

But there is more to the story. What is happening to the employees who work on a salary? This group has done somewhat better in recent years and actually had a real wage increase in 2006. Over the medium-term, real earnings are up by about 5.7% (or $1.34) for this group compared to 1991 … but are still not back up to the peak reached in 1998.

Combining the trends for those paid by the hour and those on salary produces a total hourly earnings number of about $21.04 in 2006 or up about 25¢ in real terms since 1991. Or more figuratively, Can you spare “two- bits”?

All things considered, it seems that the underlying story in this report remains pretty much the same as last year … more and more members of cash-strapped families are entering the paid job market to make ends meet. More are working because they have to and not necessarily because they want to.

Even so … household incomes spurted ahead in 2005 and 2006

In spite of sluggish hourly earnings, real disposable incomes per household improved markedly in both 2005 and 2006. This was due to the creation of over 500,000 new jobs during both years combined, significant tax reductions, plus a few very special occurrences. These occurrences include higher employers’ contributions to pensions to make up for some of the unfunded liabilities existing in many pension funds. In addition, incomes were boosted by three special programs; the Resource Rebate Program in Alberta distributed cheques totaling $1.3 billion, Ontario households received a large credit on electricity bills in early 2006 and the federal government paid out $550 million in heating cost benefits to low-income families and seniors.

As such, average real incomes per household rose to about $58,800 in 2006, still up by “only” 5% since 1990.

… and so has spending

Real average household spending also continued to increase with expenditures of roughly $57,800 in 2006, up by over 18% from 1990. The much more rapid advance in spending came at the expense of savings and the accumulation of more debt. Annual savings dipped from roughly $7,300 per household in 1990 to about $1,000 in 2006. (Readers may wonder why savings are not negative as reported in our previous report. Statistics Canada revised the income numbers up and revised the spending numbers down. Even so, the trend to much lower savings remains.)

The special feature at the end of this report looks at some of the major shifts in household spending using detailed data for the years 1999 and 2004.

Family incomes rise during first part of decade

Looking specifically at families of two or more during the first four years of this decade, the average income received from the market advanced, government transfers increased and income taxes fell. In aggregate, average incomes after transfers and income taxes advanced by 5.9% from 2000 to 2004. The year 2004 is the latest available for this series.

A NEW RECORD - Second earner contribution for couples with children

During the 2000 to 2004 period; (See appendix A)

• In 2004, the second earner among married (legal or common-law) couples with children brought in $19,500 or $600 more than in 2000. For these families, the contribution and significance of the second earner has never been larger. Definitely a WOW.
• The second earner among married couples without children contributed $16,300 to the family incomes in 2004.
• Unattached females under the age of 65 (+11.4%) and those aged 65 and over (+10%) recorded the biggest income gains of any group between 2000 and 2004.
• Alberta families (+10.1%) had the largest income gains among the provinces (and surpassed Ontario) with the highest average family incomes of $69,500.

The 2004 income tax load falls to lowest level in two decades

In 2004, the last year for which we have data, families paid, on average, $13,500 in income taxes or the equivalent of 17.7% of their total income after transfers. This is the lowest tax-to-income ratio recorded over the 1990 to 2004 period, even if the average dollar value of taxes paid actually increased by $100 from the beginning of the period to the end.

Not getting there! … Women still earn 70% of what men do at full-time, full year jobs

Average earnings (wages, commissions and self-employment incomes) for women employed full-time for a full-year stood at $38,400 in 2004. This is about 70% of what males in the same situation earned in the same year. There has been little improvement over the last 15 years, with the highest female earnings to males earnings ratio (72%) attained in the mid-1990s.

On a provincial basis, Newfoundland (61%) and Alberta (63%) have the lowest ratios for full-time, full-year workers, while Prince Edward Island (81%), Saskatchewan (79%), British Columbia (77%) and Manitoba (77%) have the highest ratios.

If other workers (part-time, part-year or some other combination) are included in the calculations, then the average earnings of all female earners is equal to a much smaller 64% of the average earnings of all male workers. Many more women work part-time than do men.

Women nearing equality … for insolvencies

In 2005, some 46,000 females became insolvent (declared bankruptcy or filed legal proposals for partial settlement) compared to 56,500 males who did so. As such, the number of female insolvencies was equal to 81% of male insolvencies. This is up from 79% in 2003, which is the first year for which this information is available.

By age group, there seems to be a direct relationship between the ratio for earnings and ratio for insolvencies. For all age groups, the female/male ratio for insolvencies is higher than it is for earnings.

Except for the youngest age group, the difference between the ratios for earnings and insolvencies widens as each group ages. For instance, female earners aged 35-44 take in 72% of what males do and record 78% as many insolvencies as males do in that age group, for a difference of six percentage points. This gap widens to 14 percentage points for those aged 45-54 and to a huge 23 percentage point difference for the 55 and older group.

As might be expected, relatively low earnings among females, and for long periods of time, account for the relatively high rates of insolvency among females.

WOW! Couples with children and only one earner are five times more likely to live in poverty than two-earner couples

The poverty rate (low-income) for all families dipped to 7.8% in 2004, down from 9% in 2000 and from 9.1% in 1990. This is the lowest rate since 1989.

There are differences by type of family; (See appendix B)

• About 36% of female lone-parents families lived in poverty in 2004, down sharply from about 49% in 1990. (See the next topic for more insights on this trend.)
• The poverty rate among two earner couple families with children held near 3.7% in 2004. The rate for one-earner families with children was a much higher 18.4% … or almost five times more. The poverty rate for these one-earner families is actually worse than it was in 1990. For families with children, the second income is increasingly necessary to stay out of poverty or to at least sustain acceptable living standards. In 2004, about 84% of couple families with children had two or more earners.
• The poverty rate among two-earner couple families without children dipped to 2.2% in 2004. The poverty rate among one-earner families without children stood at 8.9% and continued on a downward trend over the medium-term. Only 23% of these couples had a sole-earner in 2004.

The poverty rate among unattached individuals has not changed much over the last 15 years, with about 30% living in poverty in 2004 compared to 31% in 1990.

In 2004, about 13% of children below 18 years of age lived in poverty, down from 14% in both 1990 and 2000. The rate of child poverty was much higher during the recession of the early 1980s and the early 1990s when the rate hit 16% in 1984 and 19% in 1996.

Less poverty for single mothers … more join the paid work force

One of the most welcome trends in recent years has been the significant drop in the poverty rate for female lone-parent families. In 1990, about half of all of these families were living in poverty. Beginning in the last half of the 1990s, the poverty rate began to improve and reached its lowest point in 2001 and has remained near 36% through 2004.

This trend is the result of several factors, some of which are outlined below;

• Many more (84%) female lone-parents are now in the paid work force, up from about 64% in the mid-1990s. They, like other parents, must arrange for childcare when they are ‘on the job’ which raises questions about the availability, accessibility and affordability of what has become an essential support to so many families. For the 15% of all households who do use daycare centers, the average expenditure is over $2,900 per year. The average cost ranges from a low of $1,600 in Quebec to a high of $3,600 in Ontario.
• Not only are these parents more likely to be working, but the average income of those in the paid workforce increased by 17% from $26,500 in 1990 to $31,100 in 2004. As such, the poverty rate for families with one earner dropped from 39% in 1990 to 30% in 2004. Still very high.
• Lastly, there has been a slight improvement in the rate of poverty among families with no earner. It still remains at almost 80% given an average income for this group of only $17,400 in 2004.

These trends are positive, but, there is much more that needs to happen. In 2004, there were about 865,000 children under the age of 18 who lived in poverty … about 367,000 of these children or 42% of them lived in a family headed by a female lone-parent. It is important, however, to recognize that more than half of all children living in low-income families lived with both a mother and father. Another 6% of Canada’s poor children lived in other types of families including male lone-parent families and skipped-generation families.

“The truth is out there” … more and more inequality

In 1990, the richest 20% of families got over 37% of the total income pie. By 2004 this group ended up with about 40% of the pie. The share going to each of the other four groups all shrank over the period.

In 1990, the average annual income among families in the richest group was $101,000 and this rose to $125,000 by 2004 … an increase of $24,000 in 2004 dollars. The average income among the poorest families was $20,400 in 1990 and this rose to $22,300 by 2004 … an increase of $1,900. The increase achieved by the richest 20% of families between 1990 and 2004 surpassed the actual income of the poorest 20% of families in 2004.

The smallest percentage increase in incomes was for the lower-middle 20% of families, which experienced a 6.8% advance compared to an improvement of 23.7% for the richest 20% of families.

The previous chart illustrated the distribution of incomes in specific years. Over the long-term, the larger incomes and the larger income gains enjoyed by those at the top provide them with an even bigger advantage through the accumulation of wealth. In more technical terms, wealth is net worth, which is the difference between the total value of assets acquired over time and the size of debt.

The trends are similar but much more marked than they are for annual incomes;

• Only one group, the richest 20% of households, significantly increased their share of the total net worth pie. In 2005, they held 69.2% of all wealth in the country, up from 68.5% in 1999.
• The upper-middle 20% of households basically hung on to their piece of the pie, the lowest 20% of households had negative wealth in both years, and the other two groups gave away a bit more of their small piece of the pie.

The average wealth of the richest 20% of households climbed to $1,261,200 in 2005, a jump of $297,900 from 1999. This group also had the biggest (+30.9) percentage increase over the period.

At the other end, for the 20% of households with the least to call their own, wealth was non-existent and, on average, they were $2,400 in the red in 2005, worse by another $900 compared to 1999.

About 1.1 millionaire households BUT over 2 million with less than $5,000

In 2005, there were 1.1 million households with wealth equal to at least $1 million dollars. In the same year, over 2 million households had assets worth less than $5,000 and many were truly in debt.

Acquiring wealth is certainly a commendable goal for individuals and is often achieved through a combination of hard work, skill, and often some good luck. But … getting an inheritance can also provide a big push in the right direction. According to the 2005 Survey of Financial Security^xiii, only 10% of households in the bottom 20% of the wealth distribution had received inheritances at some time, compared with 36% among the richest 20% of households. On average, the market value of inheritances for recipients in the poorest group was only one-tenth ($13,200) that of the richest group ($136,600).

How far will $400 go? Poorest households at greatest risk

According to the same survey^xiv, the poorest 20% of households (about 2.7 million of them) held, on average, about $400 in deposits in a financial institution in 2005 ... they also had little else to fall back on in terms of other highly liquid assets. This group was also hampered by having to support $1.19 of debt for every $1.00 of total assets. This is up from $1.16 in 1999 and is the largest increase in the debt-to-assets ratio among any of the five income groups.

The richest 20% of households had about $16,000 on deposit plus another $47,000 in stocks that could be sold quickly. The richest group had another advantage … it was supporting only five cents of debt for every $1.00 of total assets. The five cent debt load was unchanged from 1999.

If the job market was to weaken, more of the poorest who would slip over the edge.

Ka-ching! Ka-ching! Can you hear it ring! – Debt ratio hits 127%

Shania Twain’s song, Ka-Ching, pokes fun at credit card debt. One of the best lines is “We’ve created a credit card mess, We spend the money we don’t possess”.

Chart 2 clearly revealed that spending has grown much faster than incomes. Some of this additional spending was financed with reduced savings … the rest came from more debt.

Chart 9 reveals that debt per household has now surpassed $75,000 and keeps on rising. The most recent data, measured in constant 2004 dollars, tells us that our collective debt load is up by 42% since 1990 and this compares to an increase of “only” 4.8% in real earnings. Appendix C provides a summary of debt loads and assets.

One of the best measures with which to gauge the ability of households to support debt is the ratio of debt to personal disposable incomes^xv. This ratio stood at 91% in 1990 and has risen every year (except in 2000) and now stands at a new record high of 127% at the end of the third quarter of 2006.

Solid employment gains, relatively low interest rates, rising real estate values and a strong stock market have sustained the ability to borrow additional funds from the lending institutions. As such, debt levels as a percent of total assets have remained near the 17% level for several years.

Insolvencies remain near record levels

An estimated 99,000 Canadians declared personal bankruptcy or filed a legal proposal for less than full payment with their creditors in 2006. This is down from the record of 102,600 insolvencies registered during the previous year but is still more than double the number in 1990.

Richard Archambault and Dominic Laverdiere, A Macroeconomic Model for Analysing and Forecasting Levels of Business and Consumer Insolvency in Canada, Economic Information and Analyisis, Office of the Superintendent of Bankruptcy, Industry Canada http://strategis.ic.gc.ca/epic/internet/inbsf-osb.nsf/en/br01499e.html

Believe It or Not! – Insolvencies reported by seniors multiply by 11 times

An interesting trend to monitor is the change in insolvencies by age group. Chart 11 plots the number of insolvencies by age group per 100,000 people in that age group.

The pace of increase in insolvencies has a direct link with the age of the individual. However, the recent trend in insolvencies may be exactly opposite to what we might have expected. The older the age group, the larger is the increase in insolvencies over the last 15 years.

• Note first that, compared to 1990, the rate of insolvencies in 2005 was up for every one of the six age groups.
• The smallest increase of “only” 12% was experienced by those aged 18-24. This was affected by a 1997 law that prohibited government guaranteed student loans from being part of insolvencies for at least 10 years.
• The numbers get bigger. The rate advanced by 52% for those aged 25-34, by 175% for those aged 45-54 and by 406% to for those aged 55-64.
• It goes even higher. The largest increase of 1100% was among those aged 65 and over. For the 65 and over group, the rate in 2005 was 11 times higher than in 1990 … this should be alarming as this is the group that will exhibit the fastest growth in population and households over the next two decades^xvi.

ON AVERAGE … we are getting richer

Looked at in very general terms, Canadians are doing quite well when it comes to creating wealth. In 2006, households, on average, had a net worth of over $356,000. This is up by 54% since 1990 and up by about 9% since 2000.

There have been a few dips along the way. The market value of shares held outside pension plans fell by almost one-quarter from 2000 to 2003 and the value of assets held in insurance and pension plans dipped by about 10%. Both of these have since reached new record highs. The value of real estate holdings was fairly flat from the mid 1990s to the late 1990s, but they too picked up in recent years.

SPECIAL FEATURE – PART 1

A look at spending patterns 1999 to 2004 – Need or greed?

The spending patterns of Canadians are shifting. Some of these changes are due to changing tastes, product availability, socio-economic trends, attitudes to saving and debt or to rising or falling prices that face Canadian households. The most detailed source of information about spending is found in the Statistics Canada annual Survey of HouseholdSpending, which collects data on over 300 individual expenditure items. Special tabulations were run for this report for the years 1999 and 2004.

We can now attempt to provide some answers to the most frequent questions asked regarding the trends highlighted in this annual report. Is the rising debt load indicative of household spending being out of control? Are Canadians spending on things they don’t need? Are the negative trends based on need or greed?

Table 3 ranks spending by major category according to the percentage growth from 1999 to 2004. Total expenditures increased by 20%. The bolded items refer to the major categories while the italicized items provide information on those sub-categories that increased the most within each of the major categories.

All three of fastest growing major categories of expenditure can be considered as short or long-term necessities and thus offer few alternatives for households.

• The most rapid increase in expenditures over the five year period was for education (+45%). Within this category, tuition fees soared by almost one-half 47%, supplies jumped by over one-third and textbook costs increased by 28%. (3 items)

• Health care expenses increased by 32% with large increases evident for both public and private premiums and for prescribed drugs. (3 items)

• Insurance and pension fund payments jumped by 26%. These increases can be viewed as a form of forced savings with the largest advances going towards Canada and Quebec Pension Plan premiums … these soared by 67%. These increases were instituted to ensure the viability of these plans in the longer-term. For many, this left little room for other pension savings. (1 item)

• Necessities are also found among the remaining major high growth categories. These include vehicle insurance (+52%), transfer taxes and land registration fees (+79%) and condominium charges (+68%). (3 items)

When added together, these 10 italicized items (out of over 300) added an additional $1,850 in spending per household from 1999 to 2004. This was equal to about one-quarter of the total increase in spending over the period. The share of total spending on these 10 items alone jumped from about 7% of disposable incomes in 1999 to 9.3% in 2004 or by 2.3 percentage points. As this was occurring, the personal savings rate dipped from 4.0% in 1999 to 2.6% in 2004 or by 1.4 percentage points. It was not an accident.

This suggests that for many households, much of the strain on finances was due to increases in the costs of many basic necessities, increases that far outstripped relatively flat incomes. This is the point that this report has stressed previously. For these households, the tendency to save less and borrow more may have been due to need rather than to greed. Many of these households are cash-strapped and living near the edge. Of course, some of the other high growth items (boats at +96%, lawn mowers at +75% and automotive accessories at +54%) may suggest that greed too plays its part.

Readers should note that all dollars numbers are in actual dollars and have not been adjusted for inflation.

SPECIAL FEATURE – PART 2

A look at spending patterns 1999 to 2004 – Shifts by age group

The following section summarizes some key economic indicators for five age groups of householders and presents an overview of the major increases and decreases in expenditures for each of these age groups. The changes cover a relatively short period, from 1999 to either 2004 or to 2005 (for net worth). These results are based on the same data source as those used in the previous discussion. The survey covered over 300 individual expenditure items.

Readers should note that all dollars numbers are in actual dollars and have not been adjusted for inflation.

These age-based spending numbers are clearly not intended to provide a complete picture, but are rather an attempt to see what is happening around the edges. Which items are increasing rapidly and which are shrinking? These changes offer a feel for the changing lifestyles and needs of each age group.

Here are a few highlights by age group.

• The under 35 age group had the smallest gain in incomes and the smallest gain in net worth over the period.
• Hospital care and travel trailer purchases advanced the most.
• Householders aged 35-44 showed the largest advance in home ownership and they did it without increasing the number of earners.
• This group moved some of their recreational expenses to motorcycles and away from snowmobiles.
• The 45-54 group was one of only two groups that experienced an increase in home ownership.
• Home related expenses were on the upswing for this group.
• The 55-64 age group had the largest gains in incomes, in spending and in net worth. Some of this was due to the biggest increase in the number of earners.
• Alimony and child support payments dipped by a half for this group.
• The 65+ crowd was the only group to experience an advance in both auto/truck ownership and home ownership.
• High growth in computer spending and post-secondary tuitions broke the old bingo stereotype for this new crop of seniors.

Householders under the age of 35 – Shift to day-care centers

• Among these younger householders, there was no growth in the number of earners. The average disposable income of these households increased by “only” 17% from 1999 to 2004 ... tied for the smallest increase among the five age groups. Current spending increased by 20%. Very small change in net worth (negative after adjusting for inflation).
• Unchanged home ownership rates and declining automobile/truck ownership.

• Largest single expenditure increase was for out-of-pocket spending for hospital care. There is a shift towards payments made directly to hospitals and away from physician’s care (-53%).
• Spending much more than previously on travel trailers, playground equipment and computer supplies. Rapid growth in gifts and support payments may reflect the fluid marital situations among this group.
• Increasingly sending their children to day-care centers (+53% in dollars spent) and less prone to use other types of childcare outside the home or even childcare inside the home (-28%).
• Biggest decline in newspaper buying of any group but keeping up via the internet. Spending less on cleaning equipment and dry-cleaning services.

Householders aged 35-44 – Largest advance in home ownership

• This group managed to keep their current expenditure growth in line with their rather sluggish growth in disposable income … in spite of fewer earners. Median net worth expanded rapidly.
• Had the largest advance in home ownership rates among the five age groups but experienced a slight decline in automobile or truck ownership.

• Led the growth among all groups in several categories, including the purchase of antiques, the purchase of motorcycles and in payments of condominium fees.
• Busy maintaining and repairing owned vacation homes and working on their computers.
• It may have been the weather, but purchases of snowmobiles slid sharply over the period.
• In line with the under 35s, this group had a large decline in the purchase of tools for work. The older age groups had increases for this type of expenditure.
• More casual dining may have been in order with fewer utensils being purchased.
• Reduced spending on games of chance, with the biggest declines evident in spending on casino’s slots and video lotteries.

Householders aged 45-54 – Jump in housing related expenditures

• Total current expenditures advanced just a bit faster than did disposable incomes over the 1999 to 2004 period. This is in spite of an increase in the number of earners. Median net worth grew moderately.
• Home ownership rates improved a bit while auto or truck ownership slipped.

• Most of the largest increases over the 1999 to 2004 period were related to housing, either for the primary residence or for the vacation home. In spite of this spending, regular mortgage payments advanced by a much smaller 29% as interest rates fell. The largest increase overall was for adult’s and children’s lunches.
• Expenditures on child care in the home fell sharply and were offset by a one-third increase in child care outside the home.
• This group spent less on games of chance and, perhaps, reduced accident risks by spending less on motorcycles. Tableware and related expenditures also fell over the period.

Householders aged 55-64 – Largest increase in net worth

• This age group had the fastest growth in incomes, spending and net worth. In part, this was made possible by the largest increase in the number of earners in these households.
• In spite of this, this group experienced a slight decline in home ownership … offset by a slight advance in auto and trucks ownership.

• The largest increases in expenditures were all related to housing, which may help explain why there was an actual decline in expenditures to maintain or repair furniture and equipment ... out with the old and in with the new.
• Traveler accommodations soared, as did package travel tours (+77%). It also seems that this age group was spending more time on the computer and less time attending social clubs and playing bingo.
• A surprising feature for this age group was the 50% decline in the average amount paid in alimony and child support. It increased for all other groups. On average, those aged 55-64, who actually paid alimony and child support in 2004 shelled out about $8,500.

Householders aged 65 and over – Home and away from home

• Among seniors, the percentage advance for both incomes and expenditures were the same over the 1999 to 2004 period. Very few were working for pay.
• Median net worth improved sharply. Only the 55-64s did better.
• Seniors were the only group to experience an increase in both home ownership and auto and truck ownership. In addition, the increase in the auto and truck ownership rate was, by far, the largest of any age group.

• Throw away those stereotypes. The largest increase in expenditures among seniors was for computer supplies. Not far behind was the huge jump in tuition fees. The percentage of households with computer supply purchases more than doubled to 18% from 1999 to 2004. They did the same among those aged 55-64.
• Dental plans and medical care expenditures increased rapidly.
• In 2004, about twice (8%) as many seniors had expenses on owned vacation homes as those who purchased recreational vehicles.
• Domestic and other cleaning services seem to have a shrinking demand.

ENDNOTES AND SOURCES

The Vanier Institute of the Family
94 Centrepointe Drive
Ottawa, Ontario, Canada, K2G 6B1
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