Is Cash Making Reserves Poor?

Is too much cash making reserves poor?

Imagine if you rented everything, and owned nothing (bike, chair, T.V., you name it). As soon as you stop making your rental payments, all of your possessions would be gone. You’d be penniless, homeless, and have nothing to your name. This is basically what we are doing economically on reserves. We have cash, but little wealth. What we need in the long term is wealth.

For the sake of argument I am going to use Opaskwayak Cree Nation as an example here and make some very rough economic generalizations. On OCN we have access to cash, in some cases a lot of cash ($40 million a year), however we do not have a lot of wealth.

Here’s the difference.

Wealth grows, it increases generationally and can be passed down, used to leverage or build more wealth. We currently have wealth in two areas. In our businesses and in our homes that are owned (none of us can own property on reserve … yet).

Here is one way that we can build long term wealth on the reserve.

We have approximately 500 homes on our reserve. If we value these homes on average at being worth $75,000 each (well below average, for the sake of argument), their total value is worth approximately $37.5 million (500 x $75,000 = $37,500,000).


If everyone in these homes is renting, and we maintain their present state through on going maintenance, etc. in ten years their value depreciates. It is like owning a car – as soon as you drive it off the lot its value is decreased substantially. That means in 10 years the communities wealth has increased – zero.

However, if all 500 homes (and the property) were owned by band members their value, (wealth) would grow. Even with fluctuations in the housing market home and property values generally appreciate over time. From the very first payment that was made on the property and the home you would be building up wealth. If we use the Canadian average house price and assume an increase in value well below Canadian averages, over 10 years the average price of a home on OCN would increase by, let’s say 5% per year.

Over ten years a moderate increase in value for a home would be compounded. So a home owned now worth $75,000 in ten years would be worth $122,167. (500 x $122,167 = $61 million). That is an increase in community wealth of 23.6 million dollars over 10 years.

If we moved from zero home ownership currently to 100% home ownership in 10 years (assuming no new homes were built) we would be increasing the wealth in the community by $61 million over 10 years. Over 50 years this would mean a $430 million increase in our community’s wealth. Over 100 years, a $5 billion increase in wealth. With an increase in homes roughly equal to our growth rate this number would increase substantially.

This wealth can be used to leverage other wealth. Collateral on small businesses is a prime example. Home ownership also creates a stable work force (people do not want to miss a mortgage payment and lose their homes so they are more inclined to show up for work, seek a new job if they get laid off etc.).

Homes that are owned also last substantially longer than homes that are rented or given out. On a Mandan reserve in North Dakota for example, in the 70’s homes lasted on average 6 – 10 years. By introducing a simple plan of getting families to help build the homes (it was mandatory for them to contribute and instilled a sense of ownership) they increased the lifespan of their homes to over 20 years. Perhaps most importantly, home ownership instills pride. Anyone that has ever bought a home can tell you this. This sweat equity is perhaps more valuable than other equity.

Cash equals quick instability, fast changes, easy come easy go. Wealth equals stability and long term commitment.

In 100 years, I want my great grandchildren to be a part of a community with billions of dollars of intergenerational wealth, not a community of easy come easy go renters. Home ownership and property rights are a way to get there.



Note: The average Canadian house price increased from $282,583 in Oct 08 to $341, 079 in Oct. 09. (a ~ 20% increase). In Manitoba the average house price rose from $185,558 in Oct. 08 to $204,668 in Oct. 09.