Net savings across the bottom 80 per cent of Canadian households have turned materially negative, with the lowest quintile averaging -$39,000 in yearly savings by 2025, according to a report from Boston Consulting Group.
Spending growth outpaces income gains
Consumer spending has increased, but for those outside the top 20 per cent of earners, that growth is not coming from income. The report found that for the lowest 20 per cent of earners, spending jumped 27 per cent over the past five years, while disposable income rose only three per cent.
Households are filling the gap by dipping into savings, leveraging rising portfolio values, and taking on more debt. The middle 60 per cent are still spending, but spending more than their income, a deterioration of roughly $7,000 per household, meaning their savings and balance sheets are now more comparable to lowest earners.
Deepening negative savings for lowest earners
The lowest 20 per cent fell deeper into a negative savings position, with annual savings declining by roughly $15,000 per household. The bottom 20 per cent took on 17 per cent more debt while their total assets shrank, a net worth hit of roughly $35,000 per household.
Much of the increase in spending is going towards services, not goods. Financial services tied to borrowing and asset-linked fees are driving most of the growth, while real spending on essentials is flat. Purchases of cars, furniture and appliances are falling.
Savings buffers weakening across income distribution
Savings buffers are weakening across much of the income distribution, with some groups reflecting the lowest-income bracket, including retirees, students, and temporarily unemployed households.
For businesses, this means Canada no longer has a single “average consumer” to plan around. If asset values soften while borrowing costs climb, the households with the thinnest buffers have the least room to absorb the shock.
