The financial cushion that Canadians were able to build up when pandemic-related restrictions were in place has largely evaporated, according to Statistics Canada, as household budgets feel the pinch from a number of economic strains.
"On average, regardless of a household's demographic or economic characteristic, gains in household wealth acquired over the previous year have been erased," the agency reported on Monday.
"In contrast with earlier in the COVID-19 pandemic, households have recently faced a perfect storm of economic pressures, with asset values declining amidst turmoil in financial and housing markets, as well as increasing interest rates and persistently high inflation."
As of the second quarter, the average household net worth dropped 6.5 per cent, or $65,400, sequentially to $940,558. That number was down two per cent, or $19,318, compared to the second quarter of 2021.
While many households felt the impact of the surging cost of living and higher borrowing rates, lower-income families and younger Canadians bore the brunt of it, worsening income inequality.
"Reductions in wealth for the least wealthy were largely driven by higher-than-average increases in debt, while younger households (under 45 years) were affected more by declining real estate values, as these households tend to depend more on housing as a source of wealth than older households," StatCan said.
Many Canadian households built up excess savings through the pandemic amid restrictions on travel and entertainment, rising home prices and generous government support programs. Since then, the economic environment has changed drastically. Inflation and debt servicing costs have soared, home values have dropped and markets have taken a downturn, all taking a toll on Canadians' bank accounts and their expectations about what lies ahead for the economy.
The latest Bloomberg Nanos Canadian Consumer Confidence Index slid to levels generally seen during times of economic crisis. The measure of consumer sentiment found half of respondents think the economy is going to weaken by the end of the year.
In a separate release Monday, StatCan says "in the second quarter, income inequality reached an all-time high since the beginning of the COVID-19 pandemic." Its measure of inequality widened 0.2 percentage points to 46.3 per cent.
Lower-earning families saw their average disposable income fall 5.7 per cent to $6,415, as pandemic-related government support programs ended, offsetting any wage gains earned due to the tight labour market.
Meanwhile, Canada's top 20 per cent richest households had average disposable incomes of $46,805, according to StatCan, owing to salary increases, self-employment income and investment returns.
Michelle Zadikian is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @m_zadikian.