Is the Canadian economy marginalizing millennials?

A recent study from Statistics Canada details dangerous debt levels and a widening wealth gap

Andrew Willis 23 April, 2019 | 2:00PM

Millennials who have long complained of false financial starts in Canada may be getting some vindication as a recent study from Statistics Canada paints a grim picture of financial health among young Canadians.

The study “Economic well-being across generations of young Canadians: Are millennials better or worse off?” says dangerous debt-income levels, skyrocketing real estate prices, and a widening wealth gap are making it difficult for millennials aged 25-34 to get financial traction in Canada.

First, for a positive. Income levels are higher for millennials, on average $66,500 in 2016 compared to $51,000 for young Gen-Xers at the same age in 1999. This would suggest a potential for high savings and wealth accumulation. But that’s not the case.

That $66,500 does not take into account inflation and buying power of the dollar today. When you adjust for these factors, that $66,500 becomes only $47,834.25. And that pales in comparison to their eye-watering mortgage levels. “Although millennials were better off than young Gen-Xers in terms of assets or median wealth, they were relatively more indebted, as they carried considerably more mortgage debt,” the study found.

Millennial mortgage debt overshadows income by 250%

Millennials are entering the housing market at the same pace as previous generations. However, the study found that even when taking the more conservative median after-tax income level of millennials at $83,200, and generously not including the inflation factor, their mortgage debt still stands at over 2.5 times their income. By contrast, young boomers carried mortgage debt roughly equal to their median after-tax income.

That’s why the study found that the numbers just don’t add up to meet millennial cost of living. Mortgages and phenomena of sticky wages and odd economic behavior have conspired to constrain the financial progress of young Canadians. They’ve been treading water, just managing to keep their heads above the water as they sink to a staggering 216% debt to after-tax income ratio.

Where will this go from here? The study highlights a wealth gap that has widened significantly while they grew up. The net worth of the bottom 25% sits at a meagre $9,500, a stark contrast to the $253,900 owned by the top 25%. By comparison, young Gen-Xers had a wealth gap ranging from $6,200 to only half of today’s most wealthy young Canadians at $126,900.

Those millennials able to make a down payment on a home were much better off than those that did not make the investment, the study found, with a similar wage gap when comparing millennials who owned a home and those that did not.

As young Canadians head into an uncertain economic environment, this study serves as a reminder to keep their financial houses in order, stay tuned to market and economic developments and seize investment opportunities to advance in the financial arena – no matter how uneven the playing field may be.

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Andrew Willis

Andrew Willis  Andrew Willis is a content editor for Morningstar.ca.