Canadian savings deteriorate as spending outpaces income: report

Boston Consulting's report found that the middle 60 per cent of Canadians are still spending, but are spending more than their income, a deterioration of roughly $7,000 per household. Photo by Artur Widak/NurPhoto via Getty Images

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Savings have deteriorated for majority of Canadians, particularly the bottom 80 per cent of Canadian households, as spending significantly outpace income growth, according to research by Boston Consulting Group.

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Consumer spending is up, but that growth isn’t coming from income for those outside the top 20 per cent earners. The report said that for the lowest 20 per cent of earners, spending jumped 27 per cent over the past five years, while disposable income just went up three per cent.

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However, much of that increase in spending isn’t buying goods at all. It’s going towards services, which are driving most of the growth. These include financial services tied to borrowing and asset-linked fees, while real spending on essentials is flat. Purchases of cars, furniture and appliances, on the other hand, are falling.

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The report found that the middle 60 per cent are still spending, but are spending more than their income, a deterioration of roughly $7,000 per household, meaning their savings and balance sheets are more comparable to lowest earners.

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Meanwhile, the lowest 20 per cent fell deeper into a negative savings position, with annual savings declining by roughly $15,000 per household.

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Net savings across the bottom 80 per cent of households have turned materially negative, with the lowest quintile averaging -$39,000 in yearly savings by 2025. 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.

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Savings buffers are weakening across much of the income distribution, with some reflecting the lowest-income group, including retirees, students, temporarily unemployed households.

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For businesses, this means that 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.

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