Pandemic has had disproportionate impact on low-income households

05 November 2021 4 min. read
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The Covid-19 pandemic has disproportionately impacted the finances of low-income Canadians, according to a recent report from Seymour Consulting commissioned by Prosper Canada and ABLE Financial Empowerment Network. The management consultancy’s report surveyed 1,391 low-income Canadians and 5,028 overall.

The report defines low-income households as single-person households with an income of under $25,000 and two- or more person households with an income of between $25,000 to $49,999.

Firstly, the number of low-income households has increased during the pandemic, growing from 4.6 million to 6.75 million (26% of households). These households are less likely to be financial resilient as measured by Seymour Consulting’s Financial Resilience Index (FRI), which estimates a household’s ability to get through financial hardship, stressors, and shocks as a result of unplanned events. 

Only 12% of low-income households are financially resilient compared to 31% of Canadians overall, with a mean FRI score of 41.5 compared to the Canadian mean of 55.67.

Households across all income demographics are represented across all four financial resilience segments

Low-income households were facing more financial challenges in June 2021 than they were in the early stages of the pandemic. Sixty-five percent said their household experienced significant financial hardship as a result of the pandemic (vs 44% overall) compared to 55% of low-income households in June 2020.

More than half of low-income households (51.5%) had to draw down savings as of June 2021 compared to 37% in June 2020, and 40% said they are unable to meet their essential expenses. Ninety percent said their cost of living has increased, with 68% citing housing unaffordability.

Twenty-nine percent of low-income households said their income decreased by more than 25% during the pandemic (vs 18.7% of households overall) while 16% saw income decrease by over 50%.

The pandemic has, broadly, exacerbated wealth inequality by worsening the fortunes of the poor and fattening the purses of the wealthy. According to a recent Deloitte study, the one-fifth of Canadians who have found the pandemic to be financially challenging tend to be female, have an average household income of less than $50,000, and are likely to be temporarily unemployed. Many lower-paid workers hold roles in sectors like food services, accommodation, and non-essential retail that have been disproportionately affected by pandemic job losses.

Distribution of households with low incomes across the four financial resilience segments based on the Seymour Financial Resilience Index

The one-third of Canadians who have fared well during the pandemic, according to the Deloitte study, tend to be male and have a household income of more than $100,000. They have benefitted from pandemic era accumulation of savings, skyrocketing housing prices, and strong performance of financial markets.

To make ends meet, low-income households have increased their borrowing, according to the Seymour report. Forty-three percent increased their borrowing to pay for everyday expenses, 35% borrowed money from family or friends, and 7% took out payday loans.

"This report paints a stark picture of the growing financial challenges of millions of Canadians, despite these households making every effort to stabilize financially. The continuing deterioration of their financial health, while that of wealthier Canadians continues to improve, means greater hardship for millions of families, more pressure on our health and social services, and greater inequality in Canada,” said Elizabeth Mulholland, CEO of Prosper Canada, a national charity dedicated to lessening poverty through program and policy innovation. “We need coordinated action now by governments, financial institutions, and community actors to help Canadians with low-incomes to stabilize financially and begin rebuilding their financial health."