Wednesday, July 18, 2012

Canadians Now Richer Than Americans

The top headline on Drudge Report today is, "Canadians Now Richer Than Americans".  It links to an article by U.S. News that says the average Canadian household is worth about $40,000 more than the average American household.  The article claims that this is the first time in recent history.

The article states, "The net worth of the average Canadian household in 2011 was $363,202, compared to around $320,000 for Americans.  It goes on to point out that the Canadian dollar has caught up to the U.S. dollar and the two currencies are at about par.

The U.S. and Canada have been somewhat similar for a long time now, although there is certainly a perception that the U.S. is still somewhat better in terms of economic growth.  There was probably a certain element of truth to this in the past, as Canada does have a little more of a welfare state.

There are several reasons contributing to the average net worth being higher for Canadians.  Some of them are good and some are bad.

As the article points out, "real estate held by Canadians is worth more than $140,000 more on average and they have almost four times as much equity in their real estate investments."  The last part is good.  More equity means that Canadians have saved more, at least in a sense.  It means that more Canadians will reach the point of paying off their mortgage and freeing up their incomes for other things.

The fact that Canadian real estate is worth more than real estate in the U.S. is not necessarily a good thing for Canadians.  The Canadians may be richer on paper in this respect, but it doesn't necessarily translate into wealth.  We should all know that from the peak in the housing bubble, approximately 6 years ago.

It is likely that parts of Canada are having a real estate bubble of their own now.  Have you seen the prices of houses in Toronto?  It looks like parts of California and Florida did 6 or 7 years ago.  If the real estate pops in Canada as it did in much of the U.S., then it will show that some of this wealth was illusory and there probably isn't much of a difference between the two countries in terms of wealth.

As far as government policies go, there are also differences that are good and bad between the two countries.  As mentioned, Canada is a bigger welfare state.  Canada has higher taxes.  There is a national sales tax there.  These are all negatives.

On the other hand, Canada is not as entrenched in the warfare state.  While Canada has symbolically supported the U.S. in its wars abroad, the expenditures do not come close to matching the U.S., even on a per capita basis.

Another difference is that the central bank of Canada has been a little better than the Fed in the recent past.  Of course, if Canada experiences a real estate bust, maybe the central bank there will be stupid enough to follow in Bernanke's footsteps and create new money out of thin air like crazy.

Overall, despite some differences, Canada and the U.S. are very similar.  I don't really see Canadians as being wealthier than Americans.  It's not to say this couldn't happen in the future, but that will depend on government and monetary policies.

3 comments:

kinoli said...

Hi, good article and to the point. I should point out that you mentioned taxes are higher in Canada. That is probably true for personal taxes (avg about 35k), however, something huge for Canada is that small business taxes are the lowest in the G8. The conservative federal government sees the important of small businesses for our economy and have been on a steady campaign of lowering taxes up here in Americas freezer. At 15% taxes for incomes under 500k, its crazy for Canadians not to start a business.

Another benefit that Canadians have over Americans is the Tax Free Savings Account that the government enacted several years ago. It allows Canadians to put 5k into investments each year tax free. It has been out for about 4 years now. So that means I can have 40k in stocks/bonds/mutual funds/etc for my wife and I and the government can't tax me on its gains. I don't think anything like that exists in the US. It's a great companion to our RRSPs (401k equivalent) and helpful to our overall financial planning goals.

torontoinvestrealestate said...

Really canada will done the America

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LIBERTARIAN INVESTMENTS said...

In regard to corporate taxes, the U.S. is actually the worst out of any major country on the planet.

I agree Canada is better in some aspects regarding taxation.