How’s the middle class doing? On average their net worth has nearly doubled in 17 years
“Our expanding middle” is not a reflection on post-Christmas dinner physiology, though many of us will find ourselves struggling with such expansion once the holiday season is over. Rather, it’s the image that came to mind reading Ron Kneebone and Margarita Wilkins’ recent piece on “Middle income household wealth.” (It originally ran in the Social Policy Trends series of the University of Calgary’s School of Public Policy, with which both Kneebone and Wilkins are associated.)
Their chart shows us the assets and debt of people smack dab in the middle of the income distribution (in this case, as there are several such distributions, the distribution of after-tax income). The people whose balances are shown in the chart are the middle quintile (or fifth) of such earners. They’re not “the middle class” the federal Liberals are obsessed by. The middle class is very much in the eye of the beholder. Surveys say virtually all Canadians think they’re part of it. But if anybody qualifies for middle class, you’ve got to think these middle fifth of income-earners do.
Kneebone and Wilkins show us what has been happening to the wealth of households in the middle — their assets, their debts and their net worth (which is just the difference between the two). Generally speaking, when we think of the middle class we’re supposed to be discouraged. Their incomes supposedly have been stagnant in real (i.e., inflation-adjusted) terms. They’re not as optimistic as their parents. They no longer believe their kids will do better than they did. You know the rote. Every day in every way things are getting worse. And of course it’s the fault of a social system based on markets.
Except that Kneebone and Wilkins’ data are really hard to reconcile with that story. How are the middle fifth doing? On average, their assets in 1999 were $345,673. Seventeen years later, in 2016, they were $673,811— almost twice as much. That works out to an average annual increase of 4.0 per cent. I suspect a lot of us wouldn’t be fine with a return of four per cent real on our investments.
Most of this wealth wasn’t in financial assets, of course. It was in the form of a home — or, in the statistician’s argot, a “principal residence.” The value of principal residences held by this middle fifth grew at 4.8 per cent a year in real terms.
As they used to say, “a person’s principal residence is their castle.” But the castle usually comes with a liability — a mortgage. Real mortgage debt also rose over the 17 years but not as quickly as the value of the middle group’s homes. As a result, home equity grew 5.0 per cent real, from $86,665 on average in 1999 to $199,309 in 2016. Again, these are real 2016 dollars.
Other assets? About 80 per cent of households had some form of private retirement savings, the average value of which rose from $101,875 in 1999 to $196,083 in 2016. (The people who were in this middle fifth of income-earners in 2016 were, many of them, different people than had been in the middle in 1999. And they may have been older on average. So maybe it’s a good thing they had almost twice as much pension wealth. This chart doesn’t say whether that was enough or not, just that that’s what they had.)
In both years, more than 85 per cent of this middle fifth had a vehicle. The average real value of vehicles was also up between 1999 and 2016. So were vehicle loans. But in 2016 the value of outstanding vehicle loans was only a little more than a third the value of all the vehicles owned. So, again, these people in the middle had big net worth in their vehicles.
We hear a lot about credit card debt these days. In fact, slightly fewer middle-fifth households had such debt in 2016 than in 1999 (40.7 per cent vs. 41.9 per cent). But credit card debt was just 2.8 per cent of all debt in the middle fifth in 2016 and under half a per cent of the value of all assets.
We hear a lot about credit card debt these days. In fact, slightly fewer middle-fifth households had such debt in 2016 than in 1999
On average for the middle fifth, in 1999 total debt was just 14.4 per cent of total assets. It was a little higher in 2016, at 14.9 per cent. But average net worth was up from $295,974 to $573,475, which works out to four per cent real on an annual basis.
Homes obviously are key in these calculations of wealth. We hear a lot these days about the high cost of housing and how hard it is for younger people to (literally) get their foot in the door. But it can’t just be a case of poor, deserving millennials vs. wealthy immigrant money-launderers. The flip side of high housing prices is that for lots of middle-income Canadians the run-up in the value of their homes has been a great thing. Governments, especially minority ones, drive down house values at their peril.