The hole has been growing steadily for the reason that COVID-19 pandemic, exacerbated by inflation, labour market disruptions, and rate of interest fluctuations. Wealthier Canadian households had been in a position to climate financial uncertainty and spiking costs—and certainly, they proceed to develop their web price—whereas lower-income households skilled losses and took on extra debt.
What’s the wealth hole?
On this context, the wealth hole, generally known as the earnings hole, is “the distinction within the share of disposable earnings between households within the high 40% of the earnings distribution and the underside 40%.” Word that the wealth hole doesn’t merely have a look at family earnings, however at web price—and the power to extend holdings over time, for instance by way of investments, actual property, and financial savings.
Majors drivers of the wealth hole
Listed below are some main contributors to the financial scenario at the moment affecting Canadian households.
Labour market situations
In early 2020, at the start of the pandemic, the unemployment charge spiked, creeping over 14% in Might. The variety of unemployed Canadians began to develop once more in 2023, with extra newcomers and younger folks becoming a member of the labour pressure and struggling to search out work. These elements continued by way of 2024, and as of June 2025, the unemployment charge is 6.9%.
In accordance with Statistics Canada knowledge, lower-income households—these on the backside 20% of the earnings distribution—had been particularly affected. This group skilled declining wages, due largely to decreased hours.
Rate of interest modifications
The pandemic additionally drove inflation, making every part from groceries to constructing supplies costlier. In an effort to stimulate the financial system, the Financial institution of Canada raised its coverage rate of interest beginning in mid-2022. The speed peaked at 5% in July 2023 and didn’t start to fall once more till June 2024. The present coverage charge is 2.75%.
Fee modifications have constructive and detrimental penalties. Excessive rates of interest imply extra beneficial returns on investments, however in addition they spike the prices of borrowing—a strain that disproportionately impacts lower-income households. Now that charges have come down, the price of borrowing is decrease, however so are rates of interest on funding autos like financial savings accounts and assured funding certificates (GICs).
Investments
Decrease-income households “are likely to have much less diversified funding portfolios that target interest-bearing devices fairly than different types of investments, reminiscent of equities,” Statistics Canada experiences. Decrease rates of interest imply much less development. In distinction, wealthier Canadians noticed sturdy development of their belongings, due partly to diversified portfolios.