Prosperity Doesn't Guarantee Smooth Sailing For All Canadians
by PJ Wade
As the Canadian income tax deadline looms on the horizon, money (or the lack of it) is on everyone's mind. Although Canada seems to have ricocheted off the US recession into continued prosperity, the financial road ahead will not be a smooth one for everyone.
Although federal government surpluses are forecast to run between CN$3 billion and CN$7 billion, provincial governments are still reeling from the downturn and many face deficits caused by prolonged shortfalls in revenues. British Columbia and Ontario project deficits in the CN$4-billion range and Alberta has already brought in a budget that cuts spending by $1.4 billion. In response to financial pressures, provinces continue to cut non-education and non-healthcare spending and to raise sales taxes and other consumption-related taxes. Expect local financial battles between provincial and municipal governments to continue with little relief offered by the federal government. The costs of property ownership will continue to rise while service delivery will become leaner and meaner.
According to a new Statistics Canada survey of about 16,000 households, the growth in wealth inequality between 1984 and 1999 was associated with substantial declines in real average and median wealth for some groups, such as young couples with
children and recent immigrants. Wealth or net worth is the amount an individual or family would have left after cashing in all assets, including their home, and paying off all debts. The wealth of young couples with children fell a striking 30 per cent over this 15 year period, from a median net worth of $44,000 in 1984 to an inflation-adjusted $30,800 by 1999. Median wealth also fell about 25 per cent for immigrant families who have been resident in Canada for less than 10 years. Only families at the top of the wealth spectrum, particularly those where the household head was a university-graduate or over 65, increased their share of total net worth during this period -- the total net worth of families headed by university-educated income earners was up18 per cent to $118,000 and of families lead by those 65 and older it increased 56 per cent to $126,000. The median net worth of our estimated 12.2 million families was $64,600 by 1999. If you're in the top half of Canadian families with an income over this figure, you may be contemplating a second home or cottage while the other half, those below this income level, may be more attracted to government programs, like 5 per cent down, designed to assist buyers in achieving their real estate dreams. The big question is, "Where will you be financially in another 15 years?"
Snowbirds and holidaying Canadians continue to have their retirement and travel plans undermined by our weak loonie. Our flexible exchange rate is meant to buffer our economy against international impact, but over the past decade the Canadian dollar has followed a steady decline losing almost 30 per cent of its value against the US dollar. Long before the economic shock of 9/11, Toronto Dominion (TD) economists blamed our low dollar on weaker Canadian productivity, a heavier debt burden and higher taxes in their special report, "The Penny Drops"," first published last April. Although there are government rumblings from time to time, TD economists suggest that while adopting the US dollar is the "only truly feasible alternative" this approach would involve "some painful practical issues" because our loonie is so severely undervalued relative to the US dollar. These economists warn that we would not come out ahead, at least not unless in a decade or two the two countries' economic structures have
moved closer together. In the meantime, financial planning for retirement should include "two for one" estimates when budgeting for a snowbird lifestyle.
How much financial progress did you make between 1982 and 1999 when the average after-tax income for Canadian households only increased about 4 per cent, rising from $41,000 to $42,500? How did you fare as a consumer over that same period while average household expenditures rose by 10 per cent? When you consider buying or selling real estate, think beyond the immediate financial challenge of squeezing yourself into the purchase or squeezing the most out of a sale. Although we all know that the cost of housing, property taxes and other related expenses are on the rise, too many property owners seem surprised when they end up house rich and cash poor. As the economy goes into full upswing, what strategies will you use to keep your after-tax income increasing, your expenses as deductible as possible and your real estate's value on the rise?
Published: April 2, 2002
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Strategist and Futurist is The Catalyst -- intent on "Helping The Best Get Better." An internationally-recognized "new retirement" authority, PJ's research, writing and speaking programs focus on decisions Baby Boomers face to achieve a successful future.
Author of 6 books, PJ knows that, since home is headquarters for the "new retirement," professionals and consumers need relevant knowledge and insights, along with solid decision-making skills, to protect and enhance this private oasis.
As The Catalyst, PJ provides strategic communication, client appreciation and advanced education services to the financial, tourism, lifestyle and service sectors -- and the clients they serve. A frequently quoted financial and business commentator, PJ is a thought-provoking strategic speaker who offers practical, real-life suggestions on leaving "the box" behind and embracing Forward Thinking -- a talent she regularly demonstrates in this column. For more, visit TheCatalyst.com.
Strategist and Futurist is The Catalyst -- intent on "Helping The Best Get Better." An internationally-recognized "new retirement" authority, PJ's research, writing and speaking programs focus on decisions Baby Boomers face to achieve a successful future.