Reprinted from the "Income" issue of Visions Journal, 2011, 7 (2), pp. 7-9
Income is money you receive, such as a wage or salary from work or assistance from government programs. It’s one of the most powerful determinants of health. Canadians rate finances among the top three sources of stress, above caring for children and personal relationships.1
Research shows that lower income is seen along with higher rates of mental health problems.2 But what does it mean to have a good or a poor income?
The cost of living
We know that it’s always good to receive income. But it’s what we can do with that income that is so important. Does the income cover the cost of basic necessities?
The cost of basic necessities is called the cost of living. The cost of living includes basic necessities like food, housing, clothing, medical care and transportation. In Canada, these costs are calculated on a system called the Consumer Price Index. This index tracks change in the cost of items and considers how these changes affect buyers. Some changes in prices affect people more than other changes. For example, a change in the cost of food has a big impact on your budget because you need to eat every day. However, a change in the cost of clothing might have a smaller impact on your budget because you don’t usually buy clothes every day.3
In essence, the cost of living indicates how sustainable your income really is.
Housing is an area of concern for many British Columbians. In 2006, 29% of all people in BC paid more than 30% of their income on housing.4 (Housing that costs greater than 30% of your income is considered unaffordable.) This has an especially significant impact on people living on a low income. But when housing costs are high compared to incomes, it also affects people living on a moderate income.5
High costs of living relative to income can create financial difficulties in the future. When a greater percentage of your income must be used for daily essentials, you have less money to put into savings. This means you’re less equipped to handle emergencies or save for the future. Some people also may rely on credit cards or loans to bridge the gap between their income and the cost of daily necessities. Growing this kind of debt can also create financial difficulties.
According to the United Nations, poverty means that you don’t have the income or other resources to meet your needs. Poverty issues include: “hunger and malnutrition; ill health; limited or lack of access to education and other basic services . . . homelessness and inadequate housing; unsafe environments; and social discrimination and exclusion.” As a result of not having your needs met, you have a hard time taking part in society.6
We can also think of poverty in terms of inequality (such as unequal access to income or opportunities) and vulnerability (such as a higher risk of falling back into poverty).7
Poverty usually is measured in monetary terms—the cost of living compared to income. There are two major ways to measure poverty: absolute poverty and relative poverty.
Absolute poverty means that you cannot afford basic necessities like food and shelter.8 The measure isn’t based on people’s incomes, but on whether people can or cannot make ends meet on the income they have.
Relative poverty means that your income is less than the majority of income earners in a given group. If the overall income level of the group decreases, the income level considered relative poverty would also decrease. If the income levels of the group increase, the income level considered relative poverty would also increase.8
Relative poverty measures inequality and shows how many people may have a hard time fully participating in their communities.9 Here is an example. While Canada has no official standard for measuring relative poverty, other countries use a limit of 60%. That is, you’re considered to be living in poverty if your income is less that 60% of the average income. We know that the average after-tax income in BC is about $35,000 per year. If we use the same 60% limit to measure poverty, a British Columbian who earns less than $21,000 per year after taxes would be living in relative poverty.8
Canada doesn’t have an official “poverty line.” Instead, researchers may use one or more income measurements to define low income.
One measurement compares your income to everyone else’s income. The median number that falls in the middle of a list of numbers. If your income is below the median, you are thought to have a low income.10 This is a measure of relative poverty. Based on 2009 data for BC, a low income would be $24,437 after taxes.11
Another approach measures the cost of a set of goods and services in your area (your “market basket”) compared to your income. If your income doesn’t cover your market basket, you are thought to have a low income.12 However, this isn’t a measure of absolute poverty because the basket is subjective. Based on the same 2009 data for BC, the low income would be $15,032 after taxes.11
The statistic used most often to measure poverty in Canada is the after-tax low income cut-off (LICO), which is a measure of relative poverty. This looks at the percentage of your income that you spend on basic necessities like food, shelter and clothing relative to the percentage of income spent on the same goods by other people in a group. If you spend 20% more of your income on basic necessities than the average person in the group, you are thought to have a low income.13 Per the 2009 data, a low income in BC would be $18,421 after taxes.11
Other types of assistance in canada
Where do we stand on income assistance?
In BC the provincial government provides income assistance to support people who don’t have a job and have no other way to support themselves, such as savings in a bank. This situation is a reality for many people living with long-term health problems like mental disorders.
There are three basic types of income assistance available from the Ministry of Social Development’s BC Employment and Assistance program: basic income assistance, Persons with Disability, and Persons with Persistent Multiple Barriers.
BC Employment and Assistance—Basic income assistance
When you receive this type of assistance, the government usually considers you “employable” and expects you to look for work, though there are exceptions.
In BC, a single person considered employable receives about $7,778 per year. This includes the basic maximum assistance amount of $7,320 ($610 per month14) plus provincial benefits and tax credits.21 In 2009, the after-tax low income cut-off, or LICO, in BC was $18,421, which means anyone who earned less than that had a low income. Basic income assistance is less than half (42%) of what is considered low income.11
Overall in Canada, median income assistance in 2009 was $7,501, including other provincial or territorial benefits and tax credits. This represents 44% of the national median LICO of $17,000. So people in BC, at $7,778, receive slightly more income assistance than people in some other provinces.
However, people on income assistance in BC are slightly “deeper” in poverty, because they are farther away from the BC low income cut-off. The difference (or gap) between the national median income assistance and the median national LICO is $9,499 ($17,000 minus $7,501). But in BC, this difference ($18,421 minus $7,778) is $10,643. The national median income assistance rate is 44% of the corresponding LICO. In BC it’s only 42%.
BC Employment and Assistance—Persons with Disabilities (PWD)
Persons with Disabilities is income assistance for people who are living with a health challenge and need help with day-to-day living. It specifically recognizes mental disorders, including disorders that may get better or worse over time. A single person can earn up to $500 a month without losing income benefits. If you find employment and no longer receive income assistance, you keep the PWD designation and continue to receive medical supports. Unlike basic income assistance, you don’t have to look for work in order to receive benefits.15
Overall in Canada, the median disability income in Canada was $11,012, including other provincial or territorial benefits and tax credits. This represents 65% of the national median LICO of $17,000. As with basic income assistance, people in BC receive slightly more disability income than people in some other provinces, but in BC there is a deeper gap between disability income levels and the low income cut-off.
BC Employment and Assistance—Persons with Persistent Multiple Barriers (PPMB)
Persons with Persistent Multiple Barriers assistance is for people who face barriers in finding and keeping employment. It falls between basic income assistance and Persons with Disabilities assistance. You don’t have to look for work to receive benefits, and you can earn some extra income when you feel well—up to $500 per month for a single person. However, PPMB assistance must be renewed every one to two years, and you need to receive income assistance for a year to qualify for PPMB. Substance use disorders are specifically excluded from PPMB assistance.16
In BC, a single PPMB client can receive up to $658 per month or $7,896 per year, excluding other provincial credits or tax credits.** Without additional credits, this represents 43% of BC’s after-tax low-income cut-off.16
Income: A lot of math for few answers
Income is not just about how much money we bring in. It’s about what we can do with that money and how well we can participate in our communities. While there are a lot of numbers and statistics about income, we can’t forget that income is ultimately about people.
About the author
Stephanie is Editorial Coordinator for Visions
Government of Canada. (2006). The human face of mental health and mental illness in Canada 2006. Ottawa, ON: Author. www.phac-aspc.gc.ca/publicat/human-humain06/pdf/human_face_e.pdf
Poetz, A., Eyles, J.D., Elliot, S. et al. (2007). Path analysis of income, coping and health at the local level in a Canadian context. Health and Social Care in the Community, 15(6), 542-552.
Bank of Canada. (2010). The Consumer Price Index [fact sheet]. Ottawa, ON: Author. www.bankofcanada.ca/wp-content/uploads/2010/11/consumer_price_index.pdf
BC Stats. (2008, August). 2006 Census fast facts: Housing affordability in British Columbia [fact sheet]. Victoria, BC: Author. www.bcstats.gov.bc.ca/data/cen06/facts/cff0614.pdf
Canada Mortgage and Housing Corporation. (2010). Canadian housing at a glance [fact sheet]. www.cmhc-schl.gc.ca/en/corp/about/cahoob/upload/dashboard_en.pdf
United Nations General Assembly. (1995). Report of the World Summit for Social Development, Copenhagen, 6-12 March 1995. Annex II, para. 18. (A/CONF.166/9). www.un.org/documents/ga/conf166/aconf166-9.htm
Haughton, J. & Khandker, S.R. (2009). Handbook on poverty and inequality. Washington, DC: World Bank. www.siteresources.worldbank.org/INTPA/Resources/
Palmer, G. (n.d.). Relative poverty, absolute poverty and social exclusion. The Poverty Site. www.poverty.org.uk/summary/social%20exclusion.shtml
Notten, G. & De Neubourg, C. (2007). Relative or absolute poverty in the USA and EU? The battle of the rates [working paper]. Maastricht, Nederland: Maastricht University.
Murphy, B., Zhang, X. & Dionne, C. (2010). Revising Statistics Canada’s Low Income Measure (LIM). Ottawa, ON: Statistics Canada. www.statcan.gc.ca/pub/75f0002m/75f0002m2010004-eng.pdf
Council on Welfare. (2010). Welfare incomes 2009. Nation Council of Welfare Reports, 129.
Human Resources and Skills Development Canada. (2009). Low income in Canada: 2000-2007 Using the Market Basket Measure - August 2009 [report]. Ottawa, ON: Author. www.hrsdc.gc.ca/eng/publications_resources/research/categories/inclusion/2009/sp-909-07-09/page05.shtml
Statistics Canada. (2008). Low-income cutoffs [definition]. Ottawa, ON: Author. www.statcan.gc.ca/pub/81-004-x/def/4153357-eng.htm
BC Ministry of Social Development. (2007). BC Employment and Assistance rate tables. www.hsd.gov.bc.ca/mhr/ia.htm
BC Ministry of Social Development. (2008). Persons with Disabilities [fact sheet]. Victoria, BC: Author. www.mhr.gov.bc.ca/factsheets/2004/pwd.htm
BC Ministry of Social Development. (2008). Persons with Persistence Multiple Barriers [fact sheet]. Victoria, BC: Author. www.mhr.gov.bc.ca/factsheets/2004/ppmb.htm
Institute of Chartered Accountants of BC. (2011). Work indicators. BC Check-Up 2011. www.bccheckup.com/bccheckup.php?cat=116
Institute of Chartered Accountants of BC. (2011). Live indicators. BC Check-Up 2011. www.bccheckup.com/bccheckup.php?cat=115
Human Resources and Skills Development Canada. (2011). Financial security – Low income incidence. Indicators of Well-Being in Canada. Ottawa, ON: Author. www4.hrsdc.gc.ca/[email protected]?iid=23#M_5
Service Canada. (2011). Employment Insurance regular benefits [fact sheets]. Ottawa, ON: Author. www.servicecanada.gc.ca/eng/ei/types/regular.shtml#eligible
Service Canada. (2011). Employment Insurance (EI) and maternity, parental and sickness benefits [fact sheets]. Ottawa, ON: Author. www.servicecanada.gc.ca/eng/ei/types/special.shtml#Sickness3
Human Resources and Skills Development Canada. (2011). Physician's Guide – Canada Pension Plan disability benefits. Ottawa, ON: Author. www.hrsdc.gc.ca/eng/oas-cpp/cpp_disability/physguide/benefits.shtml