Asset Poverty in Canada: Definition, Measurement, and Estimation
Poverty estimates are typically based on household income and have been estimated since 1965 in the US with absolute thresholds and since 1959 in Canada with the relative low income cutoff (LICO). In addition to income, assets are critical to well-being and social development. Assets are financial and non-financial stocks of wealth (e.g., saving, investments, home equity, etc.). US scholars were the first to estimate poverty thresholds based on assets with an entity being asset poor, “if their access to wealth-type resources is insufficient to enable them to meet their basic needs for some limited period of time”. Asset poverty has not been defined or measured in Canada. This paper fills this knowledge gap by addressing three questions: (a) What is the prevalence of asset poverty in Canada? (b) How do asset poverty rates vary by province? And, (c) how do asset poverty rates compare to income poverty rates?
Data from the Statistics Canada 2005 Survey of Financial Security (SFS) were used for analysis. The SFS is a cross-sectional multi-stage stratified clustered survey design providing nationally representative income, expenses, assets, and debt data from more than 5,200 households. Survey weights adjusted for population totals for province, age, sex, and household size. Based on the US definition, a household was coded asset poor when financial assets were insufficient to meet basic needs for three months (based on LICO 2005). For example, the 2005 LICO threshold for an urban 4-person household was $32,556. Therefore, a household was asset poor when reported financial assets totaled less than 25 percent (i.e., three months) of the LICO (i.e., $8,139). Analyses accounted for the complex survey design by using bootstrap replicate weights for parameter and sampling variance estimation.
The prevalence of asset poverty in Canada was estimated to be 35%, 95% CI [34, 36]. This 2005 asset poverty rate was 3.2 times larger than the 2005 low income rate of 10.8%. Analysis showed marked variation in asset poverty rates across ten Canadian provinces. The lowest asset poverty rate was found in Ontario 30%, 95% CI [28, 33]. Newfoundland and Labrador had the highest asset poverty rate with 48%, 95% CI [41, 55]. The full paper presents asset poverty rates across age and family characteristics. Results are presented with numerous graphs and tables.
Conclusions and Implications:
For the first time, this study estimates that over one in three households in Canada are asset poor, meaning they have insufficient financial assets to survive at the low-income threshold for three months. This rate is 3.2 times greater than LICO prevalence and reveals a previously hidden dimension of economic hardship in the population. In comparative terms, the higher rate of asset poverty in Canada (35%) compared to the US (25%) is partially explained by methodological differences in measurement. Several policies are recommended to address asset poverty at the provincial level such as savings programs and financial literacy interventions. Opportunities for future research using alternative thresholds and data sources are discussed.