Saturday, November 10, 2007

are we rich yet?

In the November issue of Money Sense Magazine there is an interesting article called "The All-Canadian Wealth Test". Basically MoneySense, with the help of Statistics Canada have dug down into the nitty gritty of Canadian's personal finances in order to let us know where we all stand compared with our neighbours. The results were very interesting and eye opening.

The section that I found most interesting was the section on Net Worth, because I consider this to be the goal of much of personal finance, distilled down to one number. I've noticed from the poll that I ran that many of my readers of this blog are under the age of 35.

Here is the 'Under 35' category of the net worth section:
Poorest 20% = Below $1,300
Next 20% = Below $9,400
Middle 20% = Below $34,400
Next 20% = Below $89,700
Wealthiest 20% = More than $89,700

Surprisingly we actually fall into the 'Wealthiest 20%' category by quite a margin.

And here is the 'age 35-44' section:
Poorest 20% = Below $18,300
Next 20% = Below $79,100
Middle 20% = Below $163,800
Next 20% = Below $309,200
Wealthiest 20% = More than $309,200

Increasing net worth is simple. You can increase your net worth on a monthly basis by simply:
  • Saving some portion of your income.
  • Using that savings to either pay off debt, or buy assets, or both.

As your net worth grows, it becomes harder and harder to move the needle of growth month to month and year to year. As of last check up in September we were moving our net worth up at a rate of 5.5% (per 2 month period). This was the slowest rate that I have recorded since I started measuring net worth.


pitz said...

I think if you go further into those stats, you'll find that a disproportionate amount of the net worth of people in the 25-44 age group is stored as equity in housing.

The housing market is inflated on a historic basis. The stock market is cheap. So just by having some stock, with a high earnings yield, you're leaps and bounds ahead of those 25-44 year olds that have the entirety of their wealth in home equity.

pitz said...

Basically put, from 1999 to 2005, Canadians' net worth grew from a median of $120k to $148k. However, $36k of that 'increase' was due to gains in the 'value' of principal residences, which means that the 'rest' of the median Canadian family balance sheets shrunk. (as an aside...the real value of vehicles grew as well, which is odd given the deflation in vehicle pricing over the same interval -- suggests consumers are buying much more expensive vehicles than they used to.)

Basically, the table says that Canadians practically are living paycheque to paycheque ($6100 is the median amount of financial assets per family), and only around 14% of Canadians own stocks, bonds, or investment trusts (ie: mutual fund trusts).

telly said...

pitz is right. If it weren't for an inflated housing market, the net worth of those age groups would be significantly smaller. The last chart in that article clearly shows that Canadians now spend nearly every penny of income.

Still, the most amazing statistic for me was the wage gap between males and females in all age groups.

optionsnut said...

I saw those numbers and agree with Pitz. What i found most amazing about those numbers is your growing by 5%! It stands to reason as your assets grow your net work growth will slow but that is still an impressive number if your over 100k networth.

I am in your age range and also the highest 20% of that category. However less than 50% is my house net value. With the markets going south my networth is growth is -1% the past few months i am guessing. Kudos to you for keeping up a positive #.


MG said...

thanks for the comments, and pitz I agree with your assessment as well.

optionsnut, the reason for the increaase last month was really due to savings. As mentioned it is going to get more difficult to move the needle for us as we go forward into 2008.

pitz said...

mg/optionsnuts, 5% is nice, but over the past month or two, 5% on a portfolio that is as heavily leveraged as MG's, is, quite frankly, just noise.

Not to sound discouraging, but if a true mark-to-market view was applied to MG's portfolio, in particular, the value of his house, his net worth probably fell.

Interest rates on mortgages cannot rise from 5.x% into the low 6's without seriously causing some damage to the prices of houses, and the real 'market' will eventually reflect that.

Obsessing over noise is just, IMHO, bad.

MG said...

I must disagree pitz as the gains came via cash infusion as well as debt repayment which are both permanent changes. I value my home covervatively and my market is not in decline yet.