The rich get richer and the poor get poorer. Right!
Well not now.
The global economic crisis has rewritten that old saying slightly in 2009. The rich have gotten a little poorer too.
Recent reports have shown that the average net worth of households in Canada and the number of millionaires in the world both have dropped during the recession.
Statistics Canada reports that household net worth in Canada declined by $72 billion, or 1.3 per cent, in the first quarter of 2009 due to falling real estate values and declining stock markets.
In the nine months from July 2008 to March 2009, the net worth of Canadian households dropped $510 billion.
Not even the wealthy have been able to escape the ravages of this recession.
A survey by Capgemini SA and Merrill Lynch & Co. found that the ranks of the world’s millionaires shrank at the fastest rate in 2008, with the biggest wealth loss in the world taking place in North America.
Last year’s slump in real estate and equity markets slashed the number of millionaires with assets between US$1 million and $30 million by 14.9 per cent to 8.6 million, erasing two years of increases.
The steep reduction in millionaires was the largest decline in the report’s 13-year history.
The global economic downturn lowered the combined wealth of the world’s millionaires by 19.5 per cent to US $32.8 trillion compared, to an increase of 9.4 per cent the previous year.
The global economic crisis also has hit the world’s super rich.
The number of individuals with more than $30 million fell 24.6 per cent and the value of their assets fell 23.9 per cent.
The Organization for Economic Co-operation and Development said in a recent forecast that the downturn is close to the bottom.
If we have actually hit bottom, what should Canadians do?
“The important thing to do now is to draw a line in the sand, look forward and decide where to go from here,” said Patricia Lovett-Reid, senior vice president of TD Waterhouse.
Lovett-Reid says people should examine what she calls their “whole life balance sheet” to find ways to rebuild the wealth that they’ve lost during the economic meltdown.
This includes everything from improving employment skills to get a better paying job, reducing debt, taking advantage of all potential tax breaks and incentives, and starting to invest some of the $45 billion in excess cash that Canadians have stashed away back into the financial markets.
“If people are still working, they should try to upgrade their skills to get a better paying job,” Lovett-Reid said.
“In the employment marketplace now, old is gold. There is job growth for workers over 50. Work is one of the ways for people to top up their net worth.”
Taxes are the biggest expense that people have, and they should look for ways to defer, split and minimize them, Lovett-Reid said.
“You’ve got to be tax savvy today.”
Despite varying reports on housing prices, real estate is still a good, long-term investment, particularly now with interest rates at historic lows.
If you do have a mortgage, try and pay it down as fast as possible and pay off high-interest debt, such as credit cards.
“Some of the surplus of cash is starting to come back into equity markets, but if you’re too conservative and continue to sit on it, you might not get back your losses,” said Lovett-Reid.
“Pay attention to all aspects of your balance sheet. In time, net worth will recover.”
Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors. He can be contacted at email@example.com