A Canadian Wealth Test

For years, I was an avid subscriber to the old print version of MoneySense magazine. Like many other print periodicals, however, it went exclusively online several years ago. One of the most fascinating articles I read during the print era was The All-Canadian Wealth Test, written by David Hodges and Mark Brown, and published in the January 2015 issue. At the time, I was off work on long-term disability, on dialysis, waiting for a kidney transplant, and was concerned about whether our household income and net worth were adequate for our anticipated needs. Getting a sense of where we stood relative to other Canadians gave me a helpful perspective.


Financial Management

Of the various categories that a financial planner addresses in providing financial planning services, the analysis of cash flow – income and expenses, and net worth – assets and liabilities, fit into the area of financial management and both impact and are impacted by the other financial planning areas: investment planning, retirement planning, insurance and risk management, tax planning, and estate planning.



While income is a necessary precursor to wealth, I will argue that income is not wealth itself. A specialist physician who earns a million dollars a year but spends $1.1 million is not doing as well as a household that earns $100,000 but manages to save $25,000 each year. The high-income doctor is going to build up massive debt while the middle-income household is gradually going to amass significant net worth.


Regardless of those nuances, let’s take a look at the Canadian situation and see where you stand.


Source: Statistics Canada. Table 36-10-0662-01  Distributions of household economic accounts, income, consumption and saving, by characteristic, quarterly


This first table refers to household disposable income. It does not distinguish between households consisting of a single person versus those consisting of a couple with four children. Disposable income is generally understood to be the amount available for saving, and the purchase of goods and services after deducting income taxes, other mandatory deductions, and other forms of non-discretionary spending. The term quintile means that the population analyzed is broken down into five income categories. Q3 2022 to Q2 2023 refers to the year beginning in the third quarter of 2022, which is the three months from July 1 to September 30, 2022, and ending in the second quarter of 2023, which is the three months from April 1 to June 30, 2023. In other words, it is the year from July 1, 2022 to June 30, 2023.


This next table shows the median after-tax income of families and unattached individuals in 2021. Using the median means that of all the sample after-tax incomes collected, the median figure has the same quantity of samples above as below. To provide a very simple example, if 25 households were examined, and put in order from lowest income to highest, the 13th household would be the median, as there are 12 households with incomes below and 12 households with incomes above. This is often a better choice than using an average or “mean” calculation as a few exceptionally high incomes can skew the average quite a bit higher.


Source: Statistics Canada, Canadian Income Survey


As you can see, these results are broken out by province, listed alphabetically. The territories were not included in this survey. Alberta had the highest income in 2021, while New Brunswick’s figure was the lowest, with Nova Scotia barely higher. In which province do you live, and where does your household’s income fit in?


What is Your Family Type?

Of course, where you fit along the age spectrum, and the number of income-earning members in your family, will make a difference in your income. I’ve adopted the term “economic family” in this table, as used by Statistics Canada. This refers to, “a group of two or more persons who live in the same dwelling and are related to each other by blood, marriage, common-law union, adoption or a foster relationship.” In other words, it would not refer to two or more roommates who share a dwelling.


Source: Statistics Canada. Income statistics by selected family type, 2019 to 2021


This table follows the table directly above but breaks it down by family type rather than by province. Some of the striking differences are seen between senior versus non-senior families, lone-parent families versus couples/two-parent families, and persons not in an economic family versus those who are in an economic family. The most extreme difference is between seniors living on their own versus two-parent families with children. To some extent that difference could be seen as a matter of necessity as income needs for seniors – at least for those in good health – could be considerably less than for families with children. However, I would argue that any individual living on $31,400 is doing very little discretionary spending.


You will note that senior families have more than twice the after-tax income, at $69,900, compared to individual seniors. When you consider that individuals generally have spending that is probably closer to 70% of the spending of their coupled peers, rather than the 45% indicated here, this suggests that being alone is, on average, a financial disadvantage.


Net Worth

If you can set money aside to put into short-term savings, long-term investments, retirement accounts such as defined contribution pension plans, group or personal RRSPs, TFSAs, some form of real estate, etc., you are building up net worth. A portion of that net worth may be countered by the debt that you have been required to take on to acquire that asset, typically a mortgage that was required to buy a home, but if you can reduce your debt over time, that is also effective in increasing your net worth.


The first table breaks out net worth by quintiles as of the first quarter (January to March) of 2023. The lowest and lower middle quintiles are treated as one. I didn’t find a rationale for this choice, but it may be because the lowest quintile was too low to be statistically reliable.


Source: Statistics Canada. Net worth by wealth quintile, average dollars per household…


You may think that this signals bad news for Canadians. And, to the extent that you are in your middle working years or later and you are in the lowest two quintiles, it may very well be a challenge. However, consider that households made up of students and those early in their careers could easily fit into this category. Even physicians earning in the six figures ($100,000 to $999,999) could be in the lowest quintile, perhaps even with a negative net worth, at the start of their careers, given the debt they may have accumulated during their arduous years of study.


Net Worth Ranked by Household Income

The table below shows the average net worth ranked by income in the first quarter of 2023. I find this an interesting way to rank net worth since a couple at or near retirement may have a relatively low income but have a significant net worth. As you can see, this choice of ranking tends to flatten the differences in net worth.


Source: Statistics Canada. Table 36-10-0660-01  Distributions of household economic accounts, wealth, by characteristic, Canada, quarterly


Sources of Net Worth

Many, if not most, Canadians have a substantial portion of their net worth tied up in real estate, typically their home. Given the way home values have increased in many parts of Canada in recent years, that is understandable. But to what extent is that the case across the income quintiles? The table below answers that question by presenting the various sources that constitute the wealth of Canadians.


Source: Statistics Canada. Table 36-10-0660-01  Distributions of household economic accounts, wealth, by characteristic, Canada, quarterly


First, an explanation of some of the source categories.


Life insurance here would be some form of permanent insurance that, were it to be terminated, would provide some cash value.


Pensions refer only to employer plans, not income sources from the Canada/Quebec Pension Plans or Old Age Security. In a Defined Contribution Pension Plan, the value of the pension would be equal to the figure you see on your latest statement (or online). In the case of a Defined Benefit Pension Plan, the value would be the commuted value of the pension.


Other Financial Assets include deposits in chequing or savings accounts and investments in everything from money market mutual funds to individual bonds and other debt instruments, as well as equity investments.


I trust Real Estate is straightforward. This is most commonly a household’s personal residence. Here it is considered a non-financial asset.


Other Non-Financial Assets include, most commonly, consumer durables such as automobiles, major appliances, furniture, jewellery, consumer electronics, and sporting goods. Collectibles like coins, stamps, and artwork are excluded.


As with real estate, I trust that Mortgages are well understood as representing the debt one takes on to purchase real estate.


Other Debt includes credit cards, vehicle loans, lines of credit, student loans, and any other loans from financial institutions.


Net Contribution of Real Estate to Net Worth

Given the significant role that real estate has in Canadians’ wealth, I have provided another table that shows the portion of household net worth that comes from real estate.


A brief explanation of the table above. I’ve taken the real estate figure from the earlier table and subtracted the mortgage debt. This leaves the net value of real estate. I’ve then divided Net Real Estate by Net Worth to determine the percentage of net worth that is contributed by the net value of the real estate.


You can see that the lower a household’s income the greater the percentage of net worth that comes from real estate. This makes sense. People with more income have the potential to save a higher percentage of their income, which allows them to invest their savings in a broader range of assets.


Debt to Net Worth

A common measure of the fiscal health of a business is the ratio of debt to the owners’ equity in the business. Businesses in certain industries tend to be very capital-intensive and borrow a lot. Other businesses do not have the same need. A similar ratio can be applied to our households.


You may find it interesting to see that the Lower Middle 20% on the household income scale has a larger proportion of debt to net worth compared to the other income quintiles. I don’t have a confirmed explanation for this, but one explanation may be that those in the lowest income quintile simply can’t borrow as much as those with slightly more income. In other words, they will not be approved for more debt. It could also be that these lowest-income households refrain from borrowing more because they know that they cannot take on more debt to finance a more expensive lifestyle.


Given the large amount of consumer debt that is out there in the Canadian population, these seem like very modest numbers. No doubt, within these averages, there are households at all income levels that are deeply in debt as well as those with no debt at all.


Where Do You Stand?

So where do you find yourself in comparison to your fellow Canadians? This is not intended to excite interest in “keeping up with the Joneses.” Rather, by using the criteria that are displayed in these tables, you might have a better grasp of your financial situation. In comparing, you might also find some areas that are “red flags” that need attention, or conversely, you might surprise yourself and discover that you are doing pretty well. Happy calculating!



This is the 226th blog post for Russ Writes, first published on 2023-12-04


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Disclaimer: This blog post is intended for general information and discussion purposes only. It should not be relied upon for investment, insurance, tax, or legal decisions.


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