What is this metric and why is it important?
Poverty is often thought of in terms of income, but it is also important to note the portion of people that would fall into poverty if they were to stop receiving income. Below, we look at the percentage of households whose net wealth or liquid financial assets would not support living above 50% of the country’s poverty line for more than three months without ongoing income.
How is Canada doing?
- Considering net wealth—i.e., all assets minus all debts—12% of those in Canada are in this financially-precarious situation compared to the OECD average of 18%.
- Perhaps a more accurate depiction of this situation is to only consider liquid financial assets. In that case, 57% of Canadians would not be able to sustain themselves for three months above 50% of the poverty line, which is exactly the OECD average.
There are three main technical definitions that are important to this metric. Liquid financial assets are defined as assets that can quickly be converted to income. Such assets include saving deposits, investments in equity, shares, and bonds. Household wealth is equivalised, which means that we divide wealth by the square root of household size. Finally, the poverty line here is the OECD poverty line, which is defined as half of the median household income.
This metric has similar income considerations as the OECD definition of the poverty line, where poverty is determined relative to the earnings of the overall population but not based on a basket of goods. This is still an important part of determining financial vulnerability, but looking at what wealth one must have to afford a basic basket of goods for three months would also be useful.