Canadians are richer than they think
Michael Adams
Special to The Globe & Mail
It seems every day Canadians awake to another sober message from a bank
economist or cabinet minister one part scolding, one part warning, all
very serious. We are spending too much relative to our earnings. We are
overextending ourselves when we buy houses, and we are even taking on more
debt than our supposedly more spendthrift American cousins. The priests of
commerce are telling us we are sinners.
But lurking behind the dire headlines about consumer debt and our creeping
profligacy is a strange new reality: The average Canadian has quietly become
richer than the average American. Over the past five years, net worth per
Canadian household has exceeded net worth per American household (total
combined value of liquid and real estate assets minus debt) for the first
time.
Currently, the average Canadian household is more than $40,000 richer than
the average American household. (According to the latest Environics
Analytics WealthScapes data, the average household net worth in Canada was
$363,202 in 2011; in the U.S. it was $319,970.) And these are not 60-cent
dollars, but Canadian dollars more or less at par with the U.S. greenback.
Furthermore, these figures ignore public-sector (government) debt that
presumably people on both sides of the border or their children will some
day have to pay. Such debt is higher in the U.S. as a percentage of GDP than
it is in Canada.
Has Canada experienced a sudden surge of productivity or entrepreneurial
genius? Not exactly. Our resource sector is certainly firing on all
cylinders, but the biggest reasons for Canadians deep pockets relative to
Americans in recent years are the related phenomena of the 2008 economic
crisis and the collapse of the U.S. housing market. Because house prices in
the U.S. have plunged, the real estate held by Canadians is now much more
valuable than that held by Americans (worth over $140,000 more on average).
In fact, Canadians hold more than twice as much real estate as Americans
and, once mortgages are factored in, have almost four times as much
remaining equity in their real estate. Americans liquid (non-real estate)
assets are still greater than Canadians.
But if we cannot take full credit for our greater wealth on paper, nor
should we be too badly excoriated for our greater levels of household debt.
Consumer confidence north of the border has been justifiably stronger.
(Hard-hit Americans are, reasonably, more fearful.) More Canadians also
simply have increased room to borrow; Americans are more maxed out not
least on those cumbersome mortgages.
Canadians have traditionally been the cautious, fiscally conservative
society, watching American economic dynamism from a safe remove (and
subsisting on a small cut of the branch-plant spoils). For us, paying off
the mortgage was once the equivalent of forgiveness for our acquisitive
sins. Our public policies were more prudent than the U.S. policy of allowing
home owners to deduct the interest on mortgage debt. Canadian leaders
rejected mortgage interest deductibility and fortunately Canadians only
briefly embraced the subprime mortgages that are still a huge factor in
Americans fiscal woes.
A decade and a half ago, our leaders fretted about brain drain as some of
our best young grads migrated south toward the land of opportunity instead
of settling for our safer economic landscape with more unions, more
government security blankets (like medicare and public pensions) and, of
course, higher taxes and more regulation. But after the 2008 crisis, when
U.S. financial institutions went from dynamic to dangerous, the drab safety
of Canadian fiscal conservatism began to cut a more pleasing figure.
For the moment, it seems that the risk-averse Canadian tortoise has the lead
in the race against the risk-taking American hare, who has singed his feet
on his rocket pack. How Canadians will respond to this at the household
level remains to be seen. Are we naively careering toward American-style
(pre-crash) financial behaviour with loaded credit cards, second and third
mortgages, and a lax approach to savings in a headlong pursuit of
materialism, hedonistic pleasures, and instant gratification? Or does it say
something about our abiding national character that we have so many sober
souls in positions of power who will mete out regular scoldings like the
clergy in pulpits of old and do things like change our mortgage rules to
protect us from ourselves?
Michael Adams is president of the Environics Institute and the author of
Fire and Ice: The United States, Canada, and the Myth of Converging Values.
Thé Mulindwas Communication Group
"With Yoweri Museveni and Dr. Kiiza Besigye Uganda is in anarchy"
Kuungana Mulindwa Mawasiliano Kikundi
"Pamoja na Yoweri Museveni na Dk. Kiiza Besigye Uganda ni katika machafuko"
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