Canada’s income gap remained at a record high in the second quarter of 2025 as a slowing economy continued to strain household income and net savings across all income levels, according to new data from Statistics Canada.
The agency reported recently that the difference in the share of disposable income between households in the top 40 per cent and the bottom 40 per cent of the income distribution held steady at 48.4 percentage points — matching the record set one year earlier.
“Households’ ability to maintain their economic well-being differs with changing macroeconomic conditions,” Statistics Canada said.
The second quarter saw the Bank of Canada’s policy rate fall to 2.75 per cent, two percentage points lower than the same period in 2024. While lower interest rates can reduce borrowing costs, they also tend to depress returns on interest-bearing investments, affecting households differently across the income spectrum.
Disposable income growth slows
Wage gains slowed significantly, especially in goods-producing sectors such as mining, oil and gas, and manufacturing, as well as in service sectors including trade and personal services. Disposable income rose 3.9 per cent compared with a year earlier — down from 5.9 per cent in the second quarter of 2024.
Disposable income for the lowest income households (bottom 20 per cent) increased 5.6 per cent — above the average — due largely to higher government transfers such as Employment Insurance, social assistance and retirement benefits. Lower taxes also played a role, as most support is either tax exempt or taxed at lower rates than employment income.
“The lowest income households reduced their net investment income, as a large decline in investment earnings (-21.2%), mostly from interest-bearing deposits, outweighed lower interest payments (-8.1%),” the agency said.
Households in the highest income group (top 20 per cent) saw their disposable income rise 3.1 per cent, below the national average. While wage gains were weak, they experienced the largest increase in net investment income due to a sharp drop in interest payments (-9.6%).
Net saving declines for all income levels
Net saving also declined for all income groups for the first time since 2022, when inflation reached a 40-year high.
“Net saving worsened for households across the income distribution in the second quarter of 2025 relative to a year earlier,” Statistics Canada said. “Although inflation eased… weak wage gains did not keep pace with household spending growth, especially for necessities such as housing, transport, and groceries.”
The decline was most pronounced among lower-income households. Higher-income households were less affected, as investment earnings increased and they benefited from reduced interest expenses on variable-rate debt like lines of credit.
Wealth gap widens as richest benefit from market gains
The wealth gap widened over the year as gains in financial markets disproportionately benefited the wealthiest Canadians, while real estate values declined — affecting younger and less wealthy households more significantly.
The top 20 per cent of households by wealth controlled 64.8 per cent of the country’s total net worth, averaging $3.4 million per household. In contrast, the bottom 40 per cent held just 3.3 per cent, averaging $86,900 per household.
“The gap in wealth between the top 20% and the bottom 40% reached 61.5 percentage points in the second quarter of 2025, up 0.2 percentage points from a year earlier,” Statistics Canada said.
The least wealthy saw their net worth rise 4.7 per cent — due entirely to financial asset growth — but that figure lagged the 9.1 per cent average increase for all households. While lower-income households were more active in the real estate market, property value growth (+4.1%) did not keep pace with rising mortgage costs (+7.7%). In contrast, the wealthiest grew their net worth by 4.9 per cent, driven by strong financial asset gains (+9.6%) and modest mortgage debt growth (+1.9%).
Younger households see smallest wealth gains
Households headed by individuals under 35 years of age saw the smallest increase in net worth (+2.1%) as they reduced real estate holdings. This group was also the only age cohort to continuously lower mortgage debt since late 2022, reflecting affordability challenges and lifestyle changes.
“Youngest households were the only group with continually decreasing mortgage debt since the end of 2022,” Statistics Canada said.
Their average mortgage debt declined 2.0 per cent in the second quarter, a slower rate than the 5.1 per cent drop recorded a year earlier. Meanwhile, households aged 55 and older increased their mortgage debt by over 8.0 per cent — the fastest among age groups — possibly to purchase investment properties or support younger family members.
Debt-to-income ratios shift by age
The debt-to-income ratio for the youngest households fell to 178.1 per cent, down 5.3 percentage points from a year earlier, as they reduced total debt by 1.6 per cent. However, their disposable income grew just 1.3 per cent, the slowest of all age groups.
Households aged 35 to 44 had the highest debt-to-income ratio at 254.2 per cent but saw a modest decline from the previous year due to stronger income gains.
Despite efforts to manage debt, the youngest households saw little change in their interest-only debt service ratio due to weak income growth.
“Although DSRs for each age group were lower in the second quarter of 2025 relative to a year earlier, they remained well above rates that prevailed prior to the Bank of Canada’s efforts to manage inflation starting in 2022,” the agency said.
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