Canadian governments need a new way to measure poverty

The following article about the Material Deprivation Index appeared in Policy Options on August 26, 2024. Click here to read the full report from the Material Deprivation Index project.

If the poverty rate is declining, why are the lineups outside foods banks in Canada getting longer? 

Statistics Canada says the country’s official poverty rate – based on what the agency calls the “market basket measure” (MBM) – fell to 9.9 per cent in 2022 from 14.5 per cent in 2015. That’s a tremendous achievement. Yet data from Foods Banks Canada shows that use of food banks rose by nearly 80 per cent between 2019 and 2023 — and by a record 32 per cent over the last year alone.  

A new measurement of poverty called the material deprivation index (MDI) can help to explain this discrepancy. The poverty rate based on the market basket is not wrong, but the measure is income-based and doesn’t show the full picture. To provide a deeper and more accurate insight into poverty in Canada, governments should add the deprivation index to key indicators they track. 

The adoption in 2019 of the market basket measure to establish the country’s first official poverty rate was a big step forward. It meant that the government was prepared to acknowledge and track the extent of poverty in the country.   

The MBM is calculated by adding up the cost of goods and services that represent a modest, basic standard of living for a household of two adults and two children in locations across Canada. A poverty line is then estimated for different types of households to establish how much income is required to enable them to purchase those items. 

Accounting for outcome rather than input 

The fundamental assumption is that annual income is the best way to assess whether a household is poor. In practice, myriad factors beyond income can affect financial well-being. Some households may have savings or assets; others may be burdened with debt. One person may be renting an apartment at a nominal rate from a family member, while another might face a hefty rent increase triggered by a move to a city facing an acute housing shortage. There may be family members with chronic health issues or a disability, which raises expenses, while others may be healthy.  

The material deprivation index takes variable circumstances into account. It does so by considering outcomes (what a household has or can do) rather than inputs (income).    

The MDI calculation is twofold. It first establishes a list of goods, services and activities that most people would expect in a household that has an acceptable standard of living. These are not “basic necessities” (subsistence food and shelter), but rather goods and services without which a household’s standard of living would fall below what most would deem acceptable in Canada.   

It then assesses a standard of living by counting the number of these a household doesn’t have — or have access to— because it can’t afford them. Examples include appropriate clothes to wear to a job interview, an annual dental checkup or a small birthday present for a child.  

A team of researchers brought together by Food Banks Canada did a study of material deprivation to demonstrate how it works, In 2022, an initial survey asked Canadians about the goods and services they would expect to find in a household with an acceptable standard of living in this country. Based on the results, a list of 14 items was compiled to include in the deprivation index. We prioritized the ones that were more likely to be seen as necessary by households at a higher risk of poverty, and took advice from focus groups and interviews with families who had faced food insecurity. 

A second survey in 2023 asked people about the items and whether there had been any they were unable to afford. Further analysis honed down to 11 the number of items to include in the MDI, which considers a person deprived if they cannot afford two or more. 

Table 1 shows the 11 deprivation categories and the proportion of Canadian adults who said they could not afford them. 

[See Table 1 here]

Just over 60 per cent of those surveyed said they could afford them all. One in four could not afford at least two items and 17 per cent could not afford at least three (Table 2). 

We determined that “two items or more” and “three items or more” were the best indicators of a poverty-level standard of living. We set the two-items threshold as our poverty measure and “three or more” to check how robust our assessment was. For example, would certain groups be equally likely to stand out as being at greater risk when a threshold of three items or more was used? 

In setting the poverty line at two items, the material deprivation survey found that one in four adult Canadians had a poverty-level standard of living. That rate was 2.5 times the rate generated by the market basket measure. The finding is more consistent with the reality that food banks are seeing today.  

The MDI also confirms that the poverty rate is much higher for particular groups, including single parents, people with a disability and those who identify as Black or Indigenous.  

In short, the study suggests that poverty may be more extensive (especially among at-risk groups) and possibly more multi-faceted than it appears when based solely on income.   

A better understanding of poverty is critical if we are to accurately evaluate our progress — or lack thereof — in reducing material distress among households in Canada. To that end, Statistics Canada should establish a material deprivation measure of goods, services and activities that households with modest but acceptable living standards would ordinarily be expected to be able to afford. This would complement the market basket measurement of poverty based on income.  

Canadian governments should also use a deprivation-based index to help assess progress on poverty reduction and to analyze the effects of poverty reduction policies. 

An added advantage would be that a survey-based MDI could provide real-time feedback on current conditions. The market basket approach is always a few years behind because it takes time to collect and check income data based on the previous calendar year. Up-to-date information is important in times of rapidly changing economic conditions, when governments need to react quickly. Recent examples include the financial uncertainty caused by the COVID-19 pandemic, the surge of inflation in its aftermath and what until recently were rapidly rising interest rates. 

Used in tandem, the two types of poverty indicators would inform efforts to make sure that all Canadians enjoy food security and a standard of living acceptable for a developed country.