By Guest Blogger Doug Rowat
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Admit it, your neighbour’s flashy new SUV pisses you off.
You’re not jealous to the extent that you wish a tree falls on it, but it still aggravates you.
This has been one of the most significant revelations of my financial-advisor career: the extent to which people evaluate their financial situation against that of their peers. One of my most frequently asked client questions is, without a doubt, “how am I doing relative to your other clients?” In a sense, we’re always, figuratively and literally, comparing our SUVs.
Now, almost every personal finance website gives similar advice: don’t compare, refrain from jealousy, set your own goals, be your best self, etc.
While this advice is nurturing and politically correct, it certainly isn’t pushing anyone to take their finances to the next level. Comparing yourself to others can be useful and motivating. Mario Lemieux didn’t have pictures of fourth-round draft picks on his wall, he had pictures of Guy Lafleur. Using the success of others as aspirational fuel is helpful. Even occasionally becoming angry at the achievements of others has merit. Again, Mario Lemieux went on to overtake Wayne Gretzky as the world’s best hockey player shortly after Gretzky was named (unjustifiably?) MVP of the 1987 Canada Cup. Lemieux didn’t like that one bit and their feud continued quietly for more than a decade—a decade where Lemieux clearly became the better player.
What these personal finance websites do correctly observe, however, is that the true financial state of your neighbour is impossible to know. And looking only at someone’s apparent financial success is pointless. Was your neighbour’s SUV, for example, bought on expensive credit? Did a rich relative help them out? Did they simply overextend just to impress?
It’s important to measure yourself against TRUE, not imagined, wealth. In other words, compare yourself to benchmarks that are transparent and accurate. The financial goalposts that you’re chasing should be based on empirically gathered data, not uncertain conclusions drawn from catching a glimpse of your neighbour’s new Q7.
Statistics Canada last year published its Indebtedness and Wealth Among Canadian Households report and this report might be as good as we’re going to get in terms of determining how well we’re actually doing versus others in this country.
It turns out that the median net worth in Canada is around $300,000 and it’s been growing by about 4% annually since 1999:
Median family net worth: Canada and selected cities
Source: Statistics Canada, Turner Investments
Keep in mind that net worth is only one indicator of financial health. You might have a net worth well above the median, but if you have high debt levels that require perfect job security in order to service that debt, then your financial situation might actually be quite precarious. However, net worth does set some rough goalposts.
If you want to dig further into the numbers based on age ranges and family types, you can do so here.
So, how do you stack up? If you don’t like the picture that the report paints for you, don’t wait for the figurative tree to fall on Canada’s SUV—go out and change your own financial situation. Start by educating yourself—and regularly reading this blog’s a good start.
Earn yourself that new SUV (or whatever it is that’s important to you). And if it turns out to be nicer than your neighbour’s? Well, so be it.
Doug Rowat, FCSI® is Portfolio Manager with Turner Investments and Senior Vice President, Private Client Group, Raymond James Ltd.