Canadian income continues to be outpaced by inflation and millennials are the generation being hit hardest by debt as a result, according to a RBC Economics report.
“The millennial generation has in many ways been defined by its staggeringly high household debt,” said the report released on Wednesday.
It also stated that millennials are the most vulnerable when it comes to job losses, which is troubling considering that Canada’s unemployment rate has increased for three months consecutively as of July.
In May, the rate was 5.2% and as Statistics Canada reported in July, that number has climbed to 5.5.%
Changing mortgage rates play a role as well. The data revealed that millennials aged 35-44 held a debt-to-income ratio of 250% on average in 2019. In 1999, that number was 150% for about half of Canadians from that same age bracket.
Today’s younger millennials are fairing out better, reporting a debt-to-income ratio of 165%. “Surprisingly, this youngest cohort hasn’t seen its debt-to-income ratio rise materially since 1999, though its home ownership rate is much lower (only one-third have a mortgage),” said the report.
Furthermore, millennials who are homeowners are at risk of seeing a 25% increase in their monthly mortgage rates by 2024 due to hikes in interest rates. These rates continue to rise despite the fact that income earnings remain lagging behind.
Hourly wages did increase by 12% since the beginning of the pandemic, however that increase is still less than half of the average five-year fixed mortgage payment.
“To young Canadians, I want to say something: You’ve had two crucial years of adulthood dramatically interrupted by COVID, and then you were hit by global inflation and increased interest rates,” said Prime Minister Justin Trudeau to reporters in Charlottetown on Wednesday.
“We owe it to you to take action, so you can fully benefit from the promise of Canada,” he said.
The rising cost of housing was one of the key issues Trudeau’s government planned to discuss and resolve during their recent cabinet retreat in P.E.I. however no solutions have been put forward in its aftermath.
The average debt for Canadians between 35-44 was $105,100 and for those under 35 that number lowered to $69,500, according to Statistics Canada. Those figures include the combined debt of mortgage, student loans and other debt.
Both Gen X and Baby Boomers are doing better than the youngest generation of home buyers.
“Only 14% of boomer households still have mortgage debt and for those that do, the average balance is half the size of a millennial mortgage. Boomers and older Generation Xs (aged 55 and up) have also amassed a bigger basket of interest-earning assets—which stand to benefit from a higher interest rate environment. Canadians’ personal term deposits in chartered banks have risen $200 billion above pre-pandemic levels, largely due to the lure of higher interest rates.” said the report.
“We have never seen it like this before and we were supposed to have solutions out of this big housing retreat Trudeau held,” said Conservative Leader Pierre Poilievre on Wednesday.
