A recent report from RBC Economics has shed light on the precarious financial situation facing Canadian millennials, who are grappling with the dual challenges of mounting debt and an income that fails to keep pace with inflation. The report, released on Wednesday, highlights the vulnerability of Canadian millennials, particularly if job losses within their age group continue to rise in the current economic landscape.
Unemployment Rates on the Rise: The report’s findings arrive against the backdrop of Canada experiencing consecutive monthly increases in its overall unemployment rate. The rate, which stood at 5.2% in May, escalated to 5.5% in July, according to Statistics Canada. As the employment situation remains uncertain, the younger generation is at risk of bearing the brunt of the wavering labor market.
Debt-to-Income Ratio Disparity: Data extracted from average mortgage rate changes between January 2019 and January 2023 underscores the growing financial strain on millennials. Older millennials, aged between 35 and 44, recorded an average debt-to-income ratio of 250% in 2019, starkly contrasting the 150% reported by Canadians in the same age group in 1999. Similarly, younger millennials also grapple with a notably high debt-to-income ratio, at 165%.
Homeowners Face Looming Mortgage Hike: An additional challenge looms for millennial homeowners. The report predicts that by 2024, due to impending interest rate hikes, monthly mortgage payments could surge by 25%. This projection will significantly impact those millennials whose earnings have failed to keep pace with the acceleration of their debt accumulation. Since the pandemic’s onset, hourly wages have only risen by 12%, a mere fraction of the increase needed to match the average five-year fixed mortgage payment.
In contrast, older generations, such as boomers aged 65 and above, appear less susceptible to the effects of interest rate hikes. A significant majority of this demographic no longer carries mortgage debt burdens. Even among the 14% who still bear such debt, their average balance is half the size of a millennial’s mortgage.
Prime Minister’s Message Amidst Financial Struggles: As millennials grapple with the rising cost of living and the housing crisis exacerbated by the pandemic, Prime Minister Justin Trudeau offered a message of reassurance during a cabinet retreat. Addressing younger Canadians directly, he acknowledged their disruptions, stating, “You’ve had two crucial years of adulthood dramatically interrupted by COVID, and then you were hit by global inflation and increased interest rates.”
Trudeau emphasized his commitment to taking action to ensure that younger Canadians can benefit from the opportunities Canada offers, underscoring housing affordability as a central issue. However, while housing affordability was a core discussion point during the three-day cabinet retreat, no new initiatives were announced to address the housing crisis.
Average Debt Levels Reflect the Struggle: Statistics Canada paints a sobering picture of millennials’ financial realities. The average debt, encompassing mortgage debt, credit card balances, student loans, and other financial obligations, was reported to be $105,100 for Canadians aged 35 to 44 and $69,500 for those under 35. These figures underscore millennials’ uphill battle in achieving financial stability amidst the current economic challenges.
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