# Some Good News From Canada's Middle Class



## OnlyMyOpinion (Sep 1, 2013)

You'll have seen this news:
Stats Can study released Tuesday shows median net worth of Canadian families jumped 44.5% to $243,800 in 2012, up from $168,700 in 2005
The total value of assets held by Canadian families in 2012 was $9.4 trillion, with their home making up one-third of the total value of assets. 
Canadians owed $1.3 trillion, including $1.0 trillion in mortgages. 
Lines of credit amounted to $144.9 billion, up from $77.5 billion in 2005

http://www.statcan.gc.ca/daily-quotidien/140225/dq140225b-eng.pdf

Related article in Financial Post: http://business.financialpost.com/2014/02/25/canada-middle-class-statscan-net-worth/


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## andrewf (Mar 1, 2010)

Woooo housing bubble. Easy come, easy go.

Anyone have similar stats for US households 2002 - 2007?


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## Janus (Oct 23, 2013)

Just a wild guess, but if you look closer I'd bet that house prices accounted for the vast majority of that gain.


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## sags (May 15, 2010)

Housing gains and funding improvements in company pensions accounted for 60% of the gains.

So we should include pensions in net worth calculations?


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## emptywallet (Dec 16, 2013)

Janus said:


> Just a wild guess, but if you look closer I'd bet that house prices accounted for the vast majority of that gain.


I just looked at some historical price charts, adjusted for inflation, for some Canadian urban centers over the past ten years. The average price/value increase was around 60% from 2004 - 2014. Granted, not all markets have seen those gains; but I would expect the total Canadian average would be pretty high as well. Removing real estate from the median net worth of Canadian families, I'm guessing median net worth has actually decreased.

I'd want to see some data showing that "funding improvements in company pensions" have accounted for any gains in the median net worth, sags.


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## sags (May 15, 2010)

emptywallet said:


> I just looked at some historical price charts, adjusted for inflation, for some Canadian urban centers over the past ten years. The average price/value increase was around 60% from 2004 - 2014. Granted, not all markets have seen those gains; but I would expect the total Canadian average would be pretty high as well. Removing real estate from the median net worth of Canadian families, I'm guessing median net worth has actually decreased.
> 
> I'd want to see some data showing that "funding improvements in company pensions" have accounted for any gains in the median net worth, sags.


That's what I was thinking. I am not sure how increasing the funding to the pension increases net worth, if it doesn't increase the monthly benefit.


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## fraser (May 15, 2010)

It is misleading.

It is good for those in the middle class who own homes because that is where the most of asset growth came from. It certainly was not from savings. The converse is that for the middle class, owning a home will become more difficult-especially as interest rates rise.

A better indicator might be actual wage increases compared to inflation and compared to other income groups.

The reality is that Canada's economy is in transition. Many of those high paying manufacturing jobs will not come back, others will be lost in the future as measures are taken to increase Canada's lagging productivity.


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## richard (Jun 20, 2013)

sags said:


> Housing gains and funding improvements in company pensions accounted for 60% of the gains.
> 
> So we should include pensions in net worth calculations?


Yes we should. Most people don't and the media can't be bothered to figure it out. Even taking out the false gains from housing (which isn't "making everyone richer" as one article claimed), pensions would add a lot to this total.


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## Andy Hammond (Feb 20, 2014)

*Include pensions ?*



richard said:


> Yes we should. Most people don't and the media can't be bothered to figure it out. Even taking out the false gains from housing (which isn't "making everyone richer" as one article claimed), pensions would add a lot to this total.


My thought is that you should include pensions you "own" ie RRSP defined contribution etc but not a defined benefit plan as you don't own that. the definition of net worth rests on the net amount left after you sell all your assets and pay off all liabilities. You cannot "sell" a defined benefit pension 
Most scary stat I saw was that 40% of Canadians in 2012 carry a balance on their credit cards !


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## alingva (Aug 17, 2013)

andrewf said:


> Woooo housing bubble. Easy come, easy go.
> 
> Anyone have similar stats for US households 2002 - 2007?


What bubble? Did they have any bubble? :stupid:


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## wert (Jan 26, 2014)

Andy Hammond said:


> ....You cannot "sell" a defined benefit pension...


You certainly can if you are an insurance company. If an annuity quote from a financial company equal to the benefits you hold from a company pension are say 1,000,000, how can you argue that the person doesn't own that? Are you saying a person working for company A who has 1 million saved in RRSP is a million dollars richer than the person with the defined benefit? That IMO is ridiculous.


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## Andy Hammond (Feb 20, 2014)

wert said:


> You certainly can if you are an insurance company. If an annuity quote from a financial company equal to the benefits you hold from a company pension are say 1,000,000, how can you argue that the person doesn't own that? Are you saying a person working for company A who has 1 million saved in RRSP is a million dollars richer than the person with the defined benefit? That IMO is ridiculous.


I understand hat an insurance company may offer you a lump sum for your income flow from a defined benefit plan...though I seriously doubt that would be a good idea unless you health is deteriorating fast....and then the lump sum you get would be small. However I have some clients who have a defined benefit pension and indeed their net worth is a lot less than someone with their own equivalent RRSP. You have to remember that the purpose of a net worth statement is simply to summarize what you have left after all assets are realised and liabilities met. That having been said I always make a note on net worth statements of the estimated value of the defined benefit so as to give a total picture


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## Pluto (Sep 12, 2013)

My perspective is that you could use a defined benefit pension in net worth calculations. Apparently the rule of thumb to calculate the assets is 6% of x = annual gross payout. So if you get 40,000 gross per year, the assets backing that would be $666,666.

However, I see the other side of the argument too. It isn't an asset that's going to your estate. Obviously, when you croak, the assets will be used for someone else's pension. Including such assets in net worth is just for planning retirement purposes. For instance, supposing someone decided they needed income from 2 million in assets to retire and they have been promised a DBPP, of 40,000 annually. I believe they can use that 6% rule of thumb to estimate the assets required to payout that pension, then subtract that from their desired 2 mil in assets. Then save or otherwise acquire the balance to meet their 2 mil target. 

Aside from that, I don't see a purpose for including a DBPP pension in net worth.


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## wert (Jan 26, 2014)

Andy Hammond said:


> I understand hat an insurance company may offer you a lump sum for your income flow from a defined benefit plan...


No. I meant that you should add to the net worth what an equal annuity would cost. If someone has a defined pension paying 50,000 for life, increased for inflation. Get a quote on the same annuity and use that as the net worth. There is no reason that one RRSP should be added when DBP shouldn't. The fact that employees don't value that DBP, or a lot of benefits for that matter, is a problem. Just don't give them out, and pay them 30% more. I think everyone would be happier.


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## sags (May 15, 2010)

I understand that a DB pension isn't left to heirs, but it does have spousal benefits, unless the beneficiary waives their right to them.

I have several friends who got divorced, and had to give their spouse half the value of the pension.........so the courts consider a DB pension an asset.

It is kind of an awkward thing to quantify though.

A person can't walk into a new car dealership and say.........take a lump sum from my DB pension plan to pay for it.

A person could very well contribute a considerable amount of their earnings to a DB pension, while someone else is contributing the same amount to an RRSP.

One would count the net worth and the other wouldn't?

Maybe it is the definition of net worth that is wrong. Perhaps it should include assets and sources of income..........less liabilities.


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## andrewf (Mar 1, 2010)

A DB pension is a liability on the balance sheet of the employer/insurer... therefore it is an asset on the balance sheet of the recipient. It isn't terribly complicated.

It's just not liquid.


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