The Covid-19 pandemic has affected low-income Canadian households far more than other households financially, according to a new study commissioned by Prosper Canada and the ABLE Financial Empowerment Network.
The study was conducted by Seymour Management Consulting Inc., a Canadian consulting firm with a focus on financial well-being innovation and financial health.
The number of low-income households has increased in recent years and has accelerated during the pandemic. In 2018, the estimated number of low-income households was 4.6 million; as of June 2021, that amount had grown to roughly 6.75 million households, an increase of 47%.
Seymour classifies low-income households as those with a total household income under $25,000 (including single person households) and households with more than one person with total household incomes between $25,000 and $49,999. These households represent 26.1% of the Canadian population, the report said.
Almost two-thirds (65%) of low-income households reported in June 2021 that they had experienced significant financial hardship due to the pandemic, compared to 44% of Canadians overall.
As a result, 51.5% of low-income Canadian households had to draw down on their savings as of June 2021 — an increase of 14.5% compared to June 2020. Further, 40% reported they’re unable to meet essential expenses such as food, housing, utilities and transportation.
These numbers come amid the backdrop of a year that has seen rising inflation, increasing energy prices and massive supply chain disruptions.
The pandemic has also played a role, with 29% of low-income households seeing their income decrease by more than 25% over the past 18 months. This is more than the 18.7% of Canadian households overall.
As a result of tough economic times, 41.8% of low-income households, as of June 2021, have a liquid savings buffer of three weeks or less. More than half (53%) reported experiencing month-to-month income volatility, compared to 39% in 2018.
“This can make it difficult for households to manage their finances and/or plan ahead financially, the report noted.
Only 24% of low-income households agreed that their financial situation has improved over the pandemic. Conversely, 62.6% of Canadians with incomes of more than $150,000 felt that way, while 40% of Canadians in general agreed.
What’s more, 69% of low-income households also ranked their primary financial institution as “poor to fair” for helping improve their financial wellness.
The study’s results were based on the Seymour Financial Resilience Index, which measures the financial resilience of households based on 3,000 to 5,000 adult Canadians surveyed every four months and uses five years of longitudinal data.
The June 2021 study had a sample size of 5,028 Canadians, 1,391 of them low-income.