Section 6
Relationship with income and wealth

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This section examines the relationship of voluntary inter-household transfers with income and wealth. As stated in Section 2, both the Canberra Group (Canberra Group 2001) and the Seventeenth International Conference of Labour Statisticians (International Labour Organization 2004) recommended the addition of both voluntary and involuntary inter-household transfers to the definition of total income. Statistics Canada now measures and includes court-ordered alimony and child support payments (involuntary inter-household transfers) as part of the definition of total income. These data are mainly collected from tax data and supplemented by surveys. In comparison, there are no tax data on voluntary inter-household transfers, and questions on voluntary inter-household transfers were not added to the Survey of Labour and Income Dynamics (SLID) questionnaire until 2006. The definition of household income in this section does not include money received as a result of voluntary inter-household transfers.

First, this section examines the relationship of voluntary inter-household transfers to household income using data from 2008 SLID. This analysis is supplemented by income and wealth data from 2005 Survey of Financial Security (SFS). Also investigated are some extreme ratios of voluntary inter-household transfers to household income that came to light during this analysis. Lastly, a set of questions will be introduced that were conceptually framed to measure voluntary inter-household transfers. These questions were qualitatively tested as a module for a new longitudinal platform being developed for Human Resources and Skills Development Canada.

Table 5 tabulates the percentage of households that sent or received voluntary inter-household transfers by household income quartiles in 2008. About 7.0% of all households in the lowest quartile sent voluntary inter-household transfers, and the median amount sent was approximately $1,500. More households sent voluntary inter-household transfers as household income increased. The median value of voluntary inter-household transfers sent was higher for the quartiles with higher household income than quartiles with lower household income. While there seems to be a linear relationship between household income and the incidence of sending transfers, this relationship was less obvious for receivers than for donors. The percentage of households receiving voluntary inter-household transfers generally decreased as income increase with the exception of the highest household income.

Table 5 Incidence of households sending and receiving voluntary inter-household transfers and its average amount, by household income group, 2008

Wealth data from the 2005 SFS are used to supplement the analysis of voluntary inter-household transfers and its relationship to other economic attributes, such as household net worth. ¹ Chart 4a shows, whether using household net worth or household income, that about four-fifths of the total amount of voluntary inter-households transfers are sent from households with net worth or income above the median. Meanwhile Chart 4b shows that about 70% of the aggregate amount of the voluntary inter-household transfers are received by households below the median of income or net worth. Both charts show voluntary inter-household transfers generally flow from more economically well-off households to less economically well-off households.

Chart 4a Shares of voluntary inter-household transfers sent by the top half and the bottom half of the income distribution and household net worth distribution

Chart 4b Shares of voluntary inter-household transfers received by the top half and the bottom half of the income distribution and household net worth distribution

This section also discusses some amounts of voluntary inter-household transfers sent or received that are extreme relative to the household income. While most voluntary inter-household transfers were small in relation to household income, a small percentage of households sent or received a large portion relative to their household income. Table 6 indicates the number of households that sent voluntary inter-household transfers in 2008 by the ratio of voluntary inter-household transfers sent relative to the recipient's household income. The median household income, the share of voluntary inter-household transfers sent by the respective household group, and the median ratio of inter-household transfers sent relative to their household income are also listed. Table 6 also shows similar information for voluntary inter-household transfer recipients.

For households that sent voluntary inter-household transfers (Table 6), the median household sent 3% of its household income. Among households that received voluntary inter-household transfers, the median household received an additional 5% of its household income.

Overall, most donors sent a small portion of their household income as voluntary inter-household transfers. Approximately four-fifths of donor households sent less than 10% of their household income, and less than 2% of donor households sent more than what they earned in 2008. The median ratio for households that sent more than 100% of their total household income sent 1.68 times their household income. These households sent about 15% of all voluntary inter-household transfers in 2008.

Among the recipients of voluntary inter-household transfers (Table 6), approximately two-thirds of households received less than 10% of their household income, while approximately 7% of all recipient households received more than 100% of their household income. The median ratio for households that received more than 100% of their household income was 3.2 times their household income. These transfers accounted for 37% of voluntary inter-household transfers received in 2008.

Voluntary inter-household transfers with amounts over 100% of the recipient's household income may indicate a strong dependency on money sent by non-household members or capital transfers misreported by respondents. However, this paper is unable to determine whether these transfers are current or capital transfers, given the absence of expenditure data, consumption data and data on voluntary inter-household transfers received.²

Voluntary inter-household transfers can provide a substantial proportion of additional income to a recipient household. However, these transfers have not yet been included in the calculation of total income at Statistics Canada. The fact that respondents may have reported capital transfers in the surveys suggests the difficulty of measuring voluntary inter-household transfers.

Table 6 Households that sent and received voluntary inter-household transfers, by amount of voluntary inter-household transfer in relations to household income, 2008

To measure voluntary inter-household transfers that conforms to the definition of current transfers, a team of analysts has developed a questionnaire module to measure voluntary inter-household transfers for a new longitudinal platform being developed for Human Resources and Skills Development Canada. This module has been qualitatively tested through cognitive interviews conducted by the Questionnaire Design Resource Centre in early 2010. The results from the interviews show that most participants were able to understand the concepts referred to in the questions and they did not feel the questions were significantly sensitive or personal. The questions tested are provided in the box below.

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Notes

1. SFS figures are for economic families, as household level figures are not available.
2. Survey of Household Spending (SHS) also measures money gifts received by households, but they cannot be differentiated from other categories in the question.