What is the average net worth by age in Canada?

Author: Tom Drake

Source: MapleMoney

In the past few years, growth in housing prices and the stock market have improved the net worth of Canadians across the board. But what exactly is net worth, and how is it calculated? In this article, we'll dive into the numbers (thank you Stats Can), and I'll do my best to interpret what the median net worth of Canada's population means for your personal finances. Ready? Let's get started!

Net worth definition

A person's net worth is the difference between their total assets and liabilities. Of course, assets represent things you own, and liabilities are your debts, or the amount that you owe. The net worth formula is simple:

Total assets – Total liabilities = Total net worth

As long as your total assets exceed total liabilities, you will have a positive net worth. If the opposite is true (liabilities > assets), you'll have a negative net worth. You can determine your net worth or your family's if you have a spouse or common-law partner.

Canadian net worth by age

Now that you understand what net worth is and how it's calculated, let's take a closer look at the median net worth for different age groups, as per Statistics Canada:

It makes sense that a person's net worth increases with age. The average Canadian doesn't reach their peak earning years until they're well into their 40s, or even 50s. After 65, most Canadians have retired, their income has decreased, and they have begun to draw down their investments, hence the decrease in median net worth.

Net worth by province

The median net worth varies depending upon where you live in Canada. Here's a net worth breakdown by province, as of 2019:

British Columbia, Alberta, and Ontario have the highest median net worth. Not surprisingly, these are the provinces with the most robust housing markets and the highest average incomes.

Household net worth trends

In addition to the impact of home values on the average Canadian net worth, Stats Canada has identified the following net worth trends.

Fewer seniors are debt-free today than in the past

In 1999, 72.6% of senior-led families were debt-free, and twenty years later, that number has fallen to 56.7%. While Canadian seniors are still more debt-free than any other age group, they are carrying more debt than before. This is one indicator that the cost of living in Canada is outpacing income growth.

Single parent families have a lower net worth

According to Stats Canada, single-parent families have less financial security than couples with children. This is evidenced by a much lower median household net worth ($83,100 vs. $435,700.) In addition to net worth, lone-parent families are less likely to own their home, have a workplace pension, or own a vehicle.

Renters nearing retirement have a lower net worth than homeowners

There's a common debate in personal finance circles as to what's better: buying or renting your home. While each side has its share of valid points, statistics favour homeowners, even when age is considered. In Canada, the median net worth of homeowners between 55 to 64 is $952,100 versus $40,000 for renters in the same age group. The concept that homeownership creates wealth is bolstered by this statistic, at least in Canada.

Families with an employer pension plan are more well off

Canadians have long known that they cannot rely solely on the Canada Pension Plan (CPP) to live off in retirement. Unless you're an incredible saver, employer-sponsored pension plans are necessary for building long-term wealth. This includes defined benefit pension plans and defined contribution pension plans.

The numbers back this up. The median net worth for families with an employer pension plan was $633,300 versus $91,200 for those with no workplace pension, a significant difference. Unfortunately, only 50.4% of Canadian families have one member enrolled in an EPP.

What is net worth used for?

Your net worth is one measurement of your current financial health, and the higher your positive net worth is, the better. On the other hand, negative net worth can indicate poor financial health, though not always the case. Net worth is one of several measurements lenders use when assessing a credit application.

It's important to note that net worth is not the only indicator of financial health, and it has its limitations. For example, it doesn't measure cash flow (ability to cover expenses), or your creditworthiness.

As an indicator of wealth, net worth on its own can be deceiving, because not all assets are equal. For example, home equity is given equal standing alongside liquid assets, like cash and stock investments. Who has the stronger $500,000 net worth? The person with $400,000 of home equity and $100,000 of liquid investments, or $400,000 in cash and ETFs, and only $100,000 in home equity.

With today's housing market, thousands of Canadians fall into the former scenario, but one could make a strong argument for the latter.

What should I include as an asset?

The following is a list of assets that you could include in your net worth calculation: 

• The market value of your house
• Cottage or investment property
• Raw land
• Vehicles
• Cash and short-term savings
• Long-term investments, including RRSP, TFSA, RRIF, etc.
• Personal effects, i.e., jewelry, clothing, etc.
• Business assets (for sole proprietors)
• Other household assets 

What should I include as a liability?

A liability is typically anything that you owe. If you own a home but have a mortgage, the liability will be the amount due on the mortgage. 

• Mortgage balance owing
• Car loan balance
• Other personal loans and lines of credit
• Student loans
• RRSP loans
• Credit card balances 

Net worth calculator

Here's an example of how you might calculate net worth for an imaginary Canadian couple:

Name: Ben and Rachel Lee

Residence: Ottawa

Family Income: $175,000

Children: Two

Total net worth: $1,015,300 – $437,603 =  $577,697

As you can see, figuring out Ben and Rachel's net worth is as simple as totaling their assets and liabilities and calculating the difference between them. You might have noticed that I didn't include the value of Ben and Rachel's leased vehicle or Ben's term life insurance policy in the net worth calculation.

When you lease a vehicle, the car belongs to the car company. Thus, it should not be considered an asset. But the lease obligations (payments) are also not considered a liability. If you choose to buy the vehicle at the end of the lease, it then becomes an asset.

Having ample life insurance coverage is crucial, but you shouldn't list it as an asset for calculating net worth unless it contains a savings component. Many people will include life insurance details in their net worth and assign a $1 value.

How can I increase my net worth?

Don't let the net worth of other Canadians make you feel worse about your financial situation. If it's less than the median, remember that high net worth is a journey, not a destination; every dollar you put towards paying down debt increases your net worth. So does every dollar you invest.

No matter where you are today, there are ways you can increase your net worth and gain more financial independence. You don't even need to own a house in Toronto – (that bubble will eventually burst, by the way.) Consider starting a side hustle, then use the extra income to invest or pay off debt more quickly. You can also try to make more money at your 9-5, through promotions or by asking for a raise.

If your company doesn't offer a pension plan, consider moving to one that does. Whether you already own a house or are thinking of buying, house hacking will help you pay your mortgage off faster and improve your net worth. Owning a rental property can also help. In other words, there are many things you can do.

Final thoughts on net worth in Canada

While there are always exceptions to the rule, understanding the net worth of Canadian families, including net worth by age, helps us make several conclusions about personal finance in Canada.

For starters, homeownership builds wealth, especially if you live in B.C., Alberta, or Ontario. Also, do what you can to work for a company with a pension plan – it will make you wealthier in the long run. And not surprisingly, two incomes are better than one.

Of course, life is never that cut and dry. There are many twists and turns along the way, and building a solid net worth can take years, even decades. Why not start today?

This article was written by Tom Drake from MapleMoney and was legally licensed through the Industry Dive publisher network. Please direct all licensing questions to legal@industrydive.com.