The household net worth per capita in Canada has increased substantially in the last seven years relative to levels seen in the United States, according to a new Statistics Canada study.
Between 1974 and 2006, Canadian household net worth per capita averaged around 60% of that seen in the average U.S. household. However, after 2007, U.S. levels dropped significantly, leading to Canadian household net worth reaching 77% of that of American households by 2012.
The study found that for both countries, household net worth grew steadily through the 1990s. But in 2007, U.S. levels reverted back to those seen in the 1970s and 1980s. One of the biggest contributors to this difference was the collapse of the U.S. housing market.
But this wasn’t the only factor for the widening gap, Chris Catliff, president and chief executive officer of BlueShore Financial, told Business in Vancouver.
One major factor, said Catliff, was the fact that in the years following 2006, the Toronto Stock Exchanged outperformed both the S&P 500 and the New York Stock Exchange.
“Canadians tend to be heavily invested in the TSX, compared with Americans,” said Catliff.
“The TSX is only a few percent of the world GDP, so you don’t get a lot of American investment in the TSX.”
Another factor, said Catliff, relates to currency exchange rates as the Canadian dollar outshone U.S. currency for many years since 2006.
Employment rates were another reason for the relative strength of Canadian household net worth per capita.
“After the crisis, the U.S. unemployment rate didn’t reach its pre-crisis level until just recently, in the last few months, whereas Canada had a little tiny blip down but just kept growing employment all the way along,” he said.
“When more people are employed, they have more chance of building financial assets and homes and everything.”
The trend will not continue, according to Catliff, and over time the relative ranking will revert back to previous levels.
“Since 2010, the U.S. stock markets have been doing better than the Canadian stock markets, the U.S. currency has been doing better and we will likely see soon that US housing will do better,” he said.
“All of those things have probably gone relatively in the US’s favour since the study was done. Over time, things tend to go back to where they were.”
Besides 2007, the year with the biggest change in household net worth in Canada relative to the United States was 1973, which was due to the oil crisis at that time.
