Here’s a headline you probably didn’t see: Canadians Have
Never Been Richer. Or this one: Household Net Worth Rises To All-Time High. Or
this: Canadians Are Twice As Wealthy, After Inflation, As They Were Twenty
Years Ago.
No, the headline you did see was something like this:
Canadian Household Debt-To-Income Ratio Hits Record High. Canadian Household
Debt Climbs. Canadians Go Deeper Into Debt.
It’s not that the latter headlines aren’t true. In fact,
the ratio of household debt to disposable income did reach an all-time high in
the second quarter, at 165.6%, bettering the previous records that had
themselves inspired a thousand heavy-breathing headlines.
It’s just that they’re not the whole story. Merely reporting how much debt
we are carrying, even relative to disposable income, tells us little. Without
knowing how much we have in the way of assets, we have a very incomplete
picture.
Anyone who’s ever bought a house knows this. If you take
out a $300,000 mortgage to buy a $500,000 house, your debt may have gone up,
but your financial position is unchanged: it’s the difference between the two,
your net worth, that counts.
True, taking on debt puts you at some risk. Even with a
fixed mortgage, your net worth can rise or fall, depending on whether your
house appreciates or depreciates in value. But you’d think you’d at least want
to know what it was. If you had to depend on the media, you’d be out of luck.
Your house could have doubled in value, and all you’d know is that you had
$300,000 in debt.
It’s not that these numbers are hard to find. Statistics Canada reports
them at the same time and on the same page as the figures on household debt.
What do they show? They show that in addition to liabilities of about
$1.75-trillion, Canadian households also had assets worth roughly $9-trillion —
more than five times as much.
All told, Canadians’ net worth stood at $7.263-trillion,
or $207,300 per capita. Adjusted for inflation, that’s a new record. A decade
ago, it was less than $150,000 per capita, in 2012 dollars. A decade before
that, it was less than $100,000. That’s right: over the last two decades,
Canadians’ per capita net worth has more than doubled, after inflation. Bet you
didn’t read that story.
Of course, even if your assets exceed your debts, you
still have to make the payments. But here again, debt-to-income doesn’t tell
the whole story. You also need to know what interest rate you’re paying on the
debt: it’s the combination of the two that dictates how much you pay every
month. These figures, too, are readily available: the Bank of Canada calculates
a “housing affordability index,” measuring mortgage payments, principal and
interest combined, against disposable income. What does it show? At a ratio of
less than 26% (as of the first quarter of this year) it is lower than it has
been at virtually any time over the last 30 years — half what it was in the
early 1990s, a third of its level in the early 1980s. But no, you haven’t read
that anywhere, either, have you?
I wish I could say this was unusual. But it’s more or
less a constant. It isn’t just the well-known observation known as
Easterbrook’s Law — “all economic news is bad” — which holds that any
economic development is bad news for somebody, and will be reported as such,
even if it’s good news for everyone else. It’s that the good news as often as
not gets flat out ignored. It just seems more compelling, more concerned, more
responsible, to report that everything is getting worse, even if the facts show
that at least some things are getting better.
Elsewhere I’ve pointed out that, contrary to everything
you’ve read lately, poverty is declining in Canada, median incomes are rising,
while inequality is steady or even falling. Again: these figures are easily
available. But the same applies to a range of other data. How many stories have
you read about youth unemployment (“Canada’s Youth Face Job Crunch” ), now at
14%? How many told you that that is in fact rather lower than it’s been
at most times in the last 40 years?
Of course it would be better if it were zero, but numbers
only have meaning relative to some benchmark. Indeed, the reason we say 14% is
bad is because it’s worse than the overall rate of 7% — or because it’s worse
than it was a few years ago, at the height of the expansion. But it’s at least
as significant that it is better than it was in almost any year in the four
decades before that.
Another example: the Canadian Centre for Policy
Alternatives has just put out a study on tuition fees and student debt. Spoiler
alert: it shows both are rising, as they have been for several years. In fact,
Canada now has the fifth-highest post-secondary tuition fees in the OECD.
That’s worth knowing, and raises legitimate fears that it might reduce accessibility.
But wouldn’t it also be worth knowing whether it has
in fact, reduced accessibility? And would you be surprised to learn that, in
fact, rates of enrollment have been climbing throughout this period: that, from
2000 to 2010, while the population aged 18-21 increased by 12%, enrollment in
post-secondary education increased by 38%?
Yes, I’m guessing you would.
(Source:
Andrew Coyne | 13/09/13 | Last Updated: 13/09/13 8:54 PM ET)
