It’s difficult to think pessimistically about the great news released mid-March about our national net worth: it increased by 2.7% to $7.7 trillion in the last quarter of 2013, following a 2.5% gain in the third quarter.
The main reason was the value of real estate in Canada, which has been rising. But according to Stephen Poloz, the Bank of Canada Governor, dark clouds could lurk behind the euphoric news.
Mr. Poloz, identified key concerns for our economy, but few solutions, in his speech in Halifax on March 18. Specifically, he noted that recovery from the recent financial crisis could be prolonged in Canada as baby boomers – the largest cohort of our population – begin to retire in droves.
The rub is that as baby boomers prepare for retirement, they channel their savings into different types of investments, many of which are less productive to the general economy, he said.
What he did not say is that the hot values in the housing market could also cool as boomers downsize at the same time, or if interest rates rise. A seller’s market could quickly flip to a buyer’s market in those cases, especially if mortgage debt loads continue to rise.
At the end of the fourth quarter, Stats Canada noted that mortgage debt in Canada was just over $1.1 trillion, up 1.1% over the previous quarter.
But, for now, owner’s equity as a percentage of real estate was 69.5% at the end of the fourth quarter, marginally higher than the 69.4% recorded at the end of the previous quarter, and that’s pretty good news.
It’s Your Money. Your Life. There are several financial factors within your control in a period of profound demographic change: pay down non-deductible debt, reduce fees paid to institutions, and be more vigilant about tax reductions you may qualify for. All of those things will increase the ROI on financial and non-financial assets, alike.
Evelyn Jacks is president of Knowledge Bureau and author of 51 books on tax and personal wealth management. Her newest book Jacks on Tax: 2014 Edition is now available. She is also the founder and director of the Distinguished Advisor Conference (DAC). The theme of the 2014 three day think tank in Horseshoe Bay, Texas Nov 9-12 will be “Think BIG: Find the Sweet Spots in Wealth Management” Follow Evelyn on Twitter at @EvelynJacks.