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 per cent, 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 per cent (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 per cent? 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 per cent is bad is because it’s worse than the overall rate of 7 per cent — 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 per cent, enrollment in post-secondary education increased by 38 per cent?
Yes, I’m guessing you would.
(By Andrew Coyne)