Why Canada’s comprehensive wealth matters

If Canadians are worried about the future financial well-being of their children and grandchildren, those worries are well placed.

That sentiment comes from a report published by the International Institute for Sustainable Development, an independent think tank that promotes sustainability. It cites a poll that found 67% of Canadians think their children will be worse off than they are.

To achieve sustainable well-being, focusing on short-term economic indicators like gross domestic product is insufficient, says the report.

“GDP measures income today,” it says. “But what matters in the long run is wealth, the foundation of income in the future.”

It suggests establishing the following measures of sustainable wealth, which make up a comprehensive wealth portfolio:

• produced capital, such as infrastructure;
• natural capital, such as natural resources;
• human capital, such as workers’ skills and knowledge;
• financial capital, such as stocks and bonds; and
• social capital, as measured by civic engagement and social cooperation.

For sustainable well-being, comprehensive wealth must be stable or growing over time on a per capita basis, the report says. “If it is not, the country is eroding its productive base, living off its inheritance rather than building for the future.”

Using data from StatsCan and other sources, the report finds that Canada’s GDP grew by an annual average rate of 1.31% from 1980 to 2015, while Canada’s comprehensive wealth portfolio grew by only 0.23%.

“GDP grew more than five times faster than the wealth foundation on which it rests,” says the report. “Viewed through the lens of comprehensive wealth, then, Canada’s development has been far less impressive than GDP alone suggests.”

Consistent with these findings, the report notes that the U.N. ranked Canada last among G7 members in comprehensive wealth growth. (Canada ranked first in the level of comprehensive wealth per capita, largely due to its natural capital.)

Beyond slow growth, the report highlights other areas of concern that threaten Canada’s comprehensive wealth portfolio.

For example, Canadian households have unprecedented levels of debt and aren’t saving enough. “Sustainability of well-being in the long term would be better served if households were less leveraged and held more balanced asset portfolios,” says the report.

Also, business investment is increasingly concentrated in only two areas—housing and oil and gas—and climate change is a threat, with flooding, wildfires and tornadoes on the rise.

For full details, read the report here.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.