Canadian households may not acknowledge it publicly, but they’re falling behind. Bank of Canada (BoC) research shows incomes beat inflation from 2020 to 2025. But the researcher warns there’s a catch, as the average often cited by policymakers is an average. Most households didn’t beat inflation, and are now racking up debt every year to meet their expenses. The problem is amplified for those who are young, poor, or—wait, own a home?
Canadian Household Expenses Are Rising Faster Than Incomes
Household bills have climbed aggressively, but so has income—at least at the headline. From 2020 to 2025, the research found households spent $6,500 more on average. Over the same span, incomes grew an average of $7,400, leaving a $900 annual surplus. That’s not ideal, but at least it’s positive. Unfortunately, the average is hiding the budget pressures most households are facing.
The 2022 to 2024 inflationary shock led to a persistent erosion in buying power. Spending exceeded income, flipping the gap into negative territory. By 2025, inflation calmed and income surpassed spending again, but only by $274. “Spending growth did outpace income gains between 2022 and 2024 as elevated inflation pushed spending higher,” explains BoC senior researcher Yaz Terajima, the author of the report.
Inflation eased but that doesn’t change the narrowing of the gap already created. “Although a lower rate of inflation means consumer prices are rising more slowly than before, it does not erase the effects of higher prices that households have had to absorb since the pandemic began,” explains Terajima.
Averaging isn’t just hiding the pain over time. It’s also concealing that most households have negative cashflow.
Most of Canada’s Households Are Accumulating Debt Annually
Canada’s wealthier households skew the average, distorting the picture. Incomes failed to keep up with the cost of living for the bottom 60% of households, a.k.a. most. The 5th quintile, top 20%, had a healthy average surplus of $14,006 in 2025. However, the 20% below them saw an average of less than a quarter that amount, averaging just $3,047. It turns negative for the rest of the country, with the 3rd quintile facing a $4,811 annual shortfall. The shortfall for the 2nd quintile was the biggest at $6,805, while the 1st—or bottom 20%—saw a $4,236 shortfall. The reason for the smaller shortfall in the bottom 20% is likely explained by credit access. When you’re broke, you borrow money to pay the bills. When you’re truly poor, you just stop eating.
Age plays a role, surprising no one in Canada. “While many households saw income growth offset higher spending, others—particularly younger and lower-income households—did not,” explains Terajima.
When he separated the 2025 data by household age groups, those under 35 had an annual shortfall of $4,249. They were the only age group in negative territory, but the trend wasn’t as blunt as just an age-related issue. The narrowest surplus was ages 55 to 64, who had a surplus of only $169 annually. It’s a surplus, but barely. seniors 65+ had over 3x that amount at $618, while peak earners ages 45 to 54 had a $1,781 surplus—10x larger.
It’s easy to assume that housing related wealth plays a role here, but not in the way we initially suspected. Homeowners had an average annual shortfall of $1,817, while renters had an average of just $90 annually. Both are negative, but those with a home are spending a lot more than they make these days.
The homeowner data point may be hard to reconcile with the other data points at first. Annual shortfalls are concentrated in younger, less wealthy households… that own all the homes? That seems odd since being young and broke isn’t often associated with ownership in Canada. The BoC doesn’t address it in the report, but it’s a side effect of a real estate bubble.
Nearly half of homeowners are mortgage free, and those tend to be older households. We’ve discussed how the average mortgage payment is lower than rent, but not if you’re a recent buyer. Buyers at the frenzy’s peak 5-6 years ago are carrying much larger mortgages. The negative skew suggests this minority’s shortfall is so large that it puts the entire average in the red.
Financial experts are warning there’s a disturbing accumulation of debt in Canada. Households are using debt to “smooth” consumption, according to credit rating agency TransUnion. That’s a fancy way of saying inflation beats their income, and they’re borrowing to fill the hole with debt. It’s not just poor financial management.
RBC warned that most parents are subsidizing their adult children’s living expenses. A problem that remains stubbornly high even as those children approach middle age.
But the important thing is inflation is low and stable, according to the BoC’s council. Just ignore the 2021 measurement change that was expected to chronically underreport CPI. It’s a mystery how that worked out.
