Every Canadian is worth $140,800

Canada’s national net worth rose to a record $4.58-trillion, or $140,800 per person by March 2006, according to Statistics Canada. This figure is up 1.4 per cent, or $62 billion from the end of 2005. The increase comes as real-estate values and equity markets swelled, said the government report.

And Canadians appear to be saving more. The personal saving rate increased to 1.9 per cent of income during the first quarter of 2006. That was a marked improvement from the 1.2 per cent rate seen in 2005.

On the other hand, we’re also borrowing more. “Households’ appetite for debt grew as demand for consumer credit and mortgage funds edged up from the previous quarter,” Statistics Canada said.

Fortunately, personal disposable income rose faster than the increase in household debt. Still, Canadian households carry about $1.08 in debt for every dollar of disposable income.

National net worth is national wealth less net foreign liabilities. It can also be expressed as the total net worth of people, corporations and governments.

A sense of false security?
A recent paper from the TD Bank Financial Group (TBFG) called In Search of Well-being: Are Canadians slipping down the economic ladder? concludes: “[A] number of economic and financial indicators — booming housing market, low borrowing costs, high employment levels — leave the impression that Canadians are well off and their economic status is steadily improving. In an attempt to reconcile the data with the perceptions, we found that Canadian households indeed have cause for concern — their economic well being has not advanced for many years.”

According to the report, inflation-adjusted GDP and after-tax incomes per worker have moved up only 3.6 per cent over a 15 year period.

“It’s hard to make a case as to why households should be feeling better off knowing that individual after-tax incomes have not seen the gains of the economy,” the TDBFG report concluded.

Yet the reported increase in net worth was credited with generating a false sense of security. “The rise in net worth should give households a feeling of greater well being, but perhaps there is an asymmetry in how people view their assets and debt. For instance, a paper gain in the value of one’s home might not seem as tangible as hard debt — amounting to an unprecedented 120 per cent of after-tax incomes — that must be financed, even if it’s at low interest rates,” the report stated.

Who would benefit from a serious review of their current real estate and financial situation?
• Property owners living with barely-manageable monthly mortgage payments may be faced with tough financial decisions if property taxes keep climbing, heating costs go through the roof and interest rates are considerably higher on mortgage renewal.

• Owners of hard-to-sell properties do best in strong markets and are the first to have problems when real estate buying slows.

• Canadians faced with the rapidly-approaching expense of sending children off to university or of financing their own futures, may find more room to save if their debt load is reduced.

• If you expect to sell or buy in a year or two, invest time now in evaluating possible strategies with a local real estate professional who can work through comparisons for delayed action.

• Those who are living from paycheque to paycheque, who can only manage minimum payments against their credit card balances or who would see their net worth dramatically eroded if real estate values dropped even a few percent are examples of the financially vulnerable.

(Source: TD Bank Financial Group)