The richest households in Canada saw nearly $200,000 erased from their net worth in the second quarter of 2022
A recent report by Statistics Canada revealed that the net worth of Canada's wealthiest households was reduced by nearly $200,000.
Households lost wealth following a domino effect of economic pressures that saw asset values fall amid unrest in the housing and financial markets along with an increase in interest rates and inflation.
Because of the losses, all increases in household wealth over the previous year were completely cancelled out, reported the Welland Tribune.
According to Statistics Canada, the average household's net worth in the second quarter of 2022 was $940,560, down $19,300 from the second quarter of 2021 and $65,400 from the first.
“Stocks and house prices went down significantly in the second quarter, and there was no indication of declining debt, resulting in household’s net worth falling,” said Jim Davies, professor emeritus at the Department of Economics, University of Waterloo.
All age groups saw an increase in the debt to asset ratio, which calculates a person's net worth as their assets less their debt.
The biggest drivers of the decline in net worth for the wealthiest families were a combination of falling real estate values, which fell by 5.4%; and financial assets, whose value fell by 6%.
However, the poorest households, whose average net worth decreased by 12% from the first to the second quarter, more than twice the rate of the wealthiest households, felt the effects of the recent economic downturn the most keenly.
According to the report, higher-than-average debt growth is to blame for losses in wealth for the least wealthy.
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The study discovered that, when compared to older households, younger households experienced the fastest net worth decline. The average wealth of people aged 35 and under, 35 to 45, and 65 and older decreased by 8.2%, 6.1%, and 6.1%, respectively, from the first quarter.
Since younger households rely more on housing as a source of wealth than older households do, they are more impacted by declining real estate values. When the stock and housing markets recover, younger households can recoup their net worth.
From the first to the second quarter, the wealth gap also increased for the first time since the pandemic started, increasing by 0.5 percentage points. Between the first quarters of 2020 and 2022, however, the wealth gap shrank by two percentage points.
“During the pandemic, government relief support programs helped close the wealth gap but now that its ended vulnerable households are hurting,” said Sohaib Shahid, director of economic innovation at The Conference Board of Canada. “The wealth gap could continue to grow if inflation and interest rates continue to rise.”
Inflation is still "very high," especially for groceries and energy bills, even though it dropped from 7.6% in June to 7% in August. This affects the least wealthy households the most because they have less money to save and less disposable income, Shahid added.