Video: Using income and assets to understand the financial vulnerability of Canadian families

David Rothwell: OK, good morning, everyone. It's a pleasure to be here. I want to say thanks to Brenda for organizing us, and the FCAC team for yet again organizing a great conference here. Normally I go to gatherings where there's just a single panel on this topic, and it's great to spend a day and a half really diving into this issues with co—research colleagues and – and policy makers. So I also want to mention my collaborator, Jennifer Robson, who's done work on this, and PhD student Mohammad Khan at McGill.

So I'm going to talk about poverty and vulnerability, and really with a focus on Canada's middle class. And this is going to be a very descriptive talk. I'm going to present some research that will hopefully get us talking about vulnerability, and using a data source that no one else has talked about yet and will provide some new insights, I hope. And we're going to talk about poverty. I know that's probably a little off-topic in a financial capability/financial literacy context, but I think there's some insight we can gain from this concept. There is a longstanding debate about what is poverty and how to measure it, and some of us run in those circles. But the basic idea here is insufficient resources to make ends meet. Whether you're talking about income poverty or asset poverty or consumption poverty, that's the basic idea.

We now have a number of ways and metrics to measure these. We've been – Jennifer and I have worked on asset poverty measures, and we'll talk about this a little bit more in a second. And the OECD has adopted these measures, and you can go into their database and see what is the percent of the population who is asset poor. And Canada has – in the new Poverty Reduction Strategy references these asset poverty measures as well. So there's something to learn from poverty, and – and there's also a really important emphasis on the middle class. I'm not going to – in the interest of time, I'm not going to read this whole quote, but the current government and most –governments and I think most of us can agree that the wellbeing of a nation is largely driven by a growing middle class and economic growth. So there's a lot of talk across the country about how is the middle class doing economically. OK?

So the idea here is to link this notion of middle class and financial vulnerability and how is Canada doing. This is just descriptive work on it, and we don't see poverty trends changing much; if anything, financial asset poverty going down over the three waves of data that we have, and if we measure the low-income measure, falling relatively stable. Most research looks at these indicators isolated. So we just have papers about financial asset poverty or income poverty. What we're going to do is we're going to take these and bring them together and look at the relationship between income and asset poverty. And you can see here in this animation that there's a joint intersection. There's a group of people who we would agree are most vulnerable. Those are the folks that are income and asset poor. But there are also the groups that are asset poor but not income poor, and vice-versa. So – and then there's, I guess the folks that would fall in the white region, that are non-poor. So we're going to take these four categories and look at this over time in Canada using the best available data we can.

So these are our questions. And in a short amount of time: what can the intersection of income and assets tell about vulnerability; how has this changed over time; and then we're going to look at the middle class and the working class and show some graphs. I'm going to have to breeze over this a little bit. But we use the Survey of Financial Security from 1999, 2005, and 2012. There is a 2016 wave, but that's a little hard to access for me, who's now out of the country, so I have to rely on the available data.

OK, so our measures of income poverty are – we use the low-income measure, which is a relative measure. Fifty percent below – if your household income is below 50 percent of the median income. OK. For asset poverty, we take that income poverty threshold and make it three months. So you know, we say that you are asset poor if you have – if you don't have enough assets to survive at the income poverty line for three months. If we have $24,000 as the income poverty line, that means you would not have $6000 in financial assets or net worth. That's how you can think about this line. We look at joint lines. And the focus is on the household because financial wellbeing is not an individual concept; it's a household and it's a family concept, so we're really looking at families and households here.

What do we mean by assets? It's, you know, we just have to talk briefly. This is the market value of – of savings, deposit accounts, cash, and other financial assets, liquid things, things that can be liquidated. For net worth, using things Brenda talked about: total net worth minus total debt. Middle class, what is the middle class? We could have a week-long conference on what is the middle class. We're going to take a simple definition of income quintiles two through four. And to look at the working class, we're going to define that as folks with less than a four-year degree and less than median household income. OK?

So this is the first graph, and I'm going to take a little bit of time explaining it because it sets up the rest of the talk. So this is – there are four bars here. Starting at the top, that pink or red bar is that group that is non-poor. So this is the percentage of Canadian families who are neither income poor nor asset poor. They don't fall into those overlapping circles I showed. OK? The other groups are poor on some metric. So if we start from the top, moving down, we have about four percent of Canadian households are income poor but not asset poor. OK? The next very large group is 41 percent of families are not income poor, so they don't show up on our traditional measures of low income, but they are financially vulnerable in the sense that they could – they do not have enough financial assets to survive at the poverty line for three months. This is a kind of validity check on the financial capability surveys that ask could you afford a $2000 emergency expense. And then the bottom group, the 14.8, is that kind of most vulnerable group. Those are the folks that are joint income and asset poor. So I haven't seen this work presented elsewhere, you know, overlapping these constructs.

So what we're going to do now is we're going to look at how these have changed over time. On the left you see financial assets; on the right you see net worth. OK? So there's just a series of graphs here showing how this has changed over time. There's a lot to look at. I guess the first thing is that that red bar is growing over time. There are fewer and fewer families who are not poor. Sorry, there are more families that are not poor. It's a little confusing. So that is progress towards less vulnerability. However, if you look at the joint poor, the most vulnerable, there's basically no change over time in that metric. OK?

So what does it look like when we look at net worth? This is for the population as a whole. We can see that there's about 71 percent of Canadian families across all years are not poor; about nine, ten, and ten are income-only, financial asset – sorry, net worth asset poor, and joint poor. OK, I hope that makes sense. I'm going to rush through here a little bit.

How is the middle income group? How is the income quintiles two through four doing? Well, again, we see kind of progress. We see going – we see more people are not poor, and those who are financial asset poor, that turquoise bar, is going down. Those people who are financial asset poor are decreasing from 57 percent in 1999 to 2012 to 49 percent. OK. That is progress. When we look at net worth, it's hard to tell. We see, I guess, less progress on net worth. And I think this is where debt comes into the story. Brenda talked about debt as an important factor on net worth, and I think this is factored in when we talk on these metrics.

OK, the working class. How is the working class doing? Again, this is the graph for overall Canadians, and this is the figure for the working class. And here we start to see much more inequality. That's the first thing, is that the joint poor, 56 percent to 51 percent of working-class Canadian families, are both income and asset poor, are highly vulnerable. There has been progress over time, but that is a large gap. How is the middle class doing on net worth? Again, large inequalities in relation to Canada overall.

So this is what we've shown so far. There's a list of, in typical academic fashion, strengths and weaknesses to this data. I do want to highlight that this is fully nationally representative Statistics Canada data that has been weighted to represent the nation. So this is the best data that we have on wealth and assets in the country. And it does allow us to compare across countries.

Just want to mention a couple of takeaways. I think that poverty is a form of vulnerability that can provide us insights here. And this descriptive work shows that poverty is widespread. You know, whether we're talking about net worth or financial assets, we can think of between 30 to 60 percent of Canadian families being vulnerable on these indicators. The joint poor, those that are income poor and asset poor, have seen limited progress over time. And we are working, and I look forward to talking about how policy can change that. The middle income, we're seeing progress: declining financial asset poverty perhaps supporting a growing middle class. We've had rising median incomes over this time period. Poverty as we've defined it is trending down for the working class. Again, this is progress. However, the size of the gaps between the working class and the rest of Canada is troubling, and I think is a real challenge for social policy makers and people who care about financial wellbeing. That will do it. Thank you.

(Applause)