Poorer than ever

Incomes for young Canadians are falling, even while incomes for retirees soar. What’s going on?



From the November 2010 issue of the magazine.


Muhammad Ali Jabbar considers himself one of the lucky ones. When he graduated with a degree in mechanical engineering from Toronto’s Ryerson University last year, the 25-year-old Milton, Ont., resident already had a decent-paying job lined up in his field. But even so, he finds himself struggling to pay his mortgage, his $30,000 student loan and $15,000 line of credit. “Basically all the money I make goes to paying bills,” he says. “I wasn’t able to make my payments last month and I got a call from a collection agency. It’s discouraging.”

Jabbar lived with his parents while he was at university, and held down various jobs to pay for it—he worked at a gas station, he was in the Canadian Forces reserves, and he was the student union president. But he never made enough to cover his $6,200 tuition. Now he’s weighed down by such a large debt that he and his wife have decided to hold off on having kids, as he’s worried about “having more people to feed.”

Many other young families are finding themselves in a similar bind—and the recent recession has shouldered most of the blame. But is this really just a short-term blip that will evaporate over the next few years? Or is there a deeper problem here? To find out, MoneySense commissioned researcher Roger Sauvé to dig through piles of Statistics Canada data to find out how the incomes for different age groups have changed over the 30-year period between 1978 and 2008. He discovered that the high unemployment and low wages that young Canadians ran into during the recession were just the latest in a long string of losses. Even before the recession hit, young Canadians had been losing income and wealth to older generations for years.

Sauvé found that when you look at incomes for the group of Canadians between the ages of 25 and 34, they haven’t increased by a penny for over three decades. Indeed, incomes actually dropped by 2% (all numbers are adjusted for inflation, so these are real gains and drops). Meanwhile, over the same period, the incomes for the older groups have been rocketing up. Canadians aged 65 and up have seen their incomes soar by an incredible 54%. Those aged 45 to 54 saw their incomes rise by 14%, and those aged 55 to 64 saw a 10% boost.

When we look at the net worth of the different age groups—meaning what they have when you add up the value of all their assets and subtract their debts—the situation for the young looks even worse. Canadians ages 25 to 34 saw a devastating 12% drop in their net worth—down to $83,000—between 1999 to 2005. During the same period, those ages 65 and up experienced a whopping 29% increase, to $519,100.



So what’s going on? Why are the young getting so much poorer while the old get wealthier and wealthier? Sauvé says a lot of the shift is due to government wealth transfers. Over the 30-year period we looked at, taxes have increased, while government programs for the young, such as grants for university, have decreased. At the same time, the older generation has enjoyed more generous tax breaks, such as income splitting, along with a truly amazing rise in government benefits from such programs as the Canada Pension Plan, Old Age Security and the Guaranteed Income Supplement.

Another huge driver of wealth for seniors has been home ownership. All age groups experienced a rise in wealth due to surging housing prices—especially between 1981 and 2006—but the biggest gains were for homeowners aged 75 and up, who saw their home values rise by 63% in real terms over that period. That’s because older Canadians were more likely to have more equity in their homes, and to own lower priced homes that shot up in value. This trend worked against the younger groups, who increasingly found they couldn’t get into the property market at all, because even starter homes were too expensive. Despite one of the biggest housing booms Canada has ever seen, since 1982 the rate of home ownership for those aged 55 and under has actually decreased.

Shifts in both the economy and society are driving these changes. The move away from manufacturing and towards knowledge-based jobs means it’s rare for young people without higher education to walk into high-paying jobs. Young Canadians have to stay in school longer before they can enter the paid workforce, and soaring tuition rates mean that students often graduate with heavy debt loads.

When young men and women finally have enough education to get a job, they still aren’t easy to come by. Canada’s youth unemployment rate is now 14.9%, much higher than the overall rate of 8%. And often the jobs that are available are contract or temporary jobs, a situation that can persist even as people move into their 30s and beyond.

How will today’s young people fare in the future? One possibility is that as the Boomers retire in the coming years, long-predicted labour shortages will finally lead to wage increases. However, some economists are concerned that the slow financial start for today’s youth will cripple them for years. “I’m worried the young will not be able to stay afloat,” says Armine Yalnizyan, senior economist with the Canadian Centre for Policy Alternatives. “With temporary jobs and no benefits and pensions, this generation cannot take care of itself or prepare for bad times. In the long run, some of these people will be fine—but a growing number will not.”

38 comments on “Poorer than ever

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  2. Wait a minute. This 'responsible adult' has $30000 student debt and he went out and bought a house and then got a $15000 line of credit and it's the economy's fault that he can't afford all that??? This is a perfect example of how this new generation wants everything right now and damn the consequences. He probably also has an iPhone and all the other toys. This should have been a cautionary tale of how you must control debt especially when starting out not how young people are being underpaid – that's been going on forever.

    • Right on !

    • This is so true. When I started out I had nothing and couldn't afford anything for years! Nothing has changed except the young want it all now.

      • Let's see you start over again now and see if you still have the point of view that young people just "want it all now". With the high cost of living, the median income rising barely enough to cover an average inflation rate of 3.65% per year since 1978, not to mention the fire and rehire culture adopted by organizations since the string of recessions and bubbles since the 90's which basically setting your salary back every few years, and you'd have twice as less than what that boomer generation had to work with when they were younger. For any generations after the boomers, you either come up with a fantastic business idea, inherit, win the lottery, or live long enough until all the boomers are out of the job market. In the end, yes you will have to do what other generations have done, save every penny, cut out everything but the difference is that you will have to wait much much longer before you have actually accumulated anything substantial or have any real opportunities.

    • And the banks that let this happen? Of course the banks had not responsibility in encouraging any of this.
      Greed, a human characteristic, does in fact come from the people, who are human, and not the banks who are not.

      So why are you defending something that's not even human Tom?

  3. Interesting,

    The message I got from this was that government wealth transfers to seduce the vote from boomers is starting to backfire. I agree that the young person mentioned in this article may have over spent their bounds, BUT where were you when you were 25-34? Did you already have a home a family? Most boomers did. Now my generation is expected to stay in school until their late 20's and live at home till 30 just to make the ends meet???

    I personally moved out at 24 and bought a house that I rented out to cover the bills. Sure that was smart of me, but is that the new norm? What about my renters, are they not supposed to have any assets? This is a dangerous trend, one that leaves an entire generation disenfranchised. This is bad news for those who expect to continue to prosper on our backs. The pendulum swings both ways Tom.

  4. And we want to get rid of the mandatory retirement at 65? No wonder there are no well paying jobs for young people when the old people won't leave! I find it mind boggling how little the government does for the new generations. In some European countries the university education is free.
    I agree with Tom, that this 25 year old should not have this much debt. How did he even get a mortgage and a line of credit when he has just finished school and had a loan already? And he is having trouble making his payments when the interest rates are at the historical low. What will he do when the rates go up?!
    But isn't it logical that your income should increase the most when you are in your 40's? You have established your career, you are probably getting regular promotions.
    And the 65 and over bracket probably includes lots of retired civil servants with a nice pension package. The current retirees are the most wealthy group and no generation that will follow will be this well of.

  5. From my viewpoint the shift of wealth is away from retires TO the younger generation. When I planned and saved for my retirement my professional salary was less than HALF of what young people today earn for doing the same job.
    At the same time, when I calculated how much I would need to save for retirement, my calculations were based on a very conservative (for the time) 8 – 10% interest on RRSP savings. Now, ten years into retirement, governments have artificially forced interest rates down to about 1/3 of that, therefore reducing the income that I live on by more than 50%. Why – so young people can afford to spend more (on iPods, electronic equipment, trucks, cars, travel, and perhaps real estate). Sure, the value of my house has gone up – but that is only of benefit to me if I sell. I had hoped to live in the home that I built, much of it with my own hands as I could afford the materials, for the rest of my life. Therefore the increased value of my home is not income for me – it is income for the young people who will inherit my estate.

    • when talking about your wages being half – SO WAS A LOAF OF BREAD!!!!

  6. To the writer of the article. Please back up your source of the references of income for the retirees!

  7. Get over it! Younger people have *always* had less money than older people — they haven't paid their dues yet! Such a bunch of whiners, always wanting instant gratification. When I was in my 20s, my husband and I had cardboard boxes for tables, a bed for a couch, and "bricks 'n board" bookcases. We didn't expect to be rich when we got out of school. You're supposed to work, save, pay a mortgage, etc. Then after a few decades, you're doing a whole lot better. It's worked this way since the Stone Age. Welcome to Reality!

    • Exactly ! I am 73 and still do a limited amount of work ….. My OAS went up $1.55 .No one pays my glasses or dental bills as workers get tax free …The system ,as it is going now, will kill itself .

  8. well then lets get rid of indexing pensions. If you older guys are that freagin smart figure out how to pay your bills

    • That made me laugh in a good way Geaorge. I'd be interested to know what the percentage breakdown in each age group is. 3% of the wealthy in the older age group may dramatically skew the results of this study for instance. Think of the 3% of the population make up 97% of the wealth kind of statistic. I fit into the group that doesn't even get mentioned – the 35 to 45 group of Gen X'ers. I do think the younger generation today have expectation issues and they need to work for what they get, not get what they think they deserve and then say they are hard done by when it's time to pay the piper. Financial sector and our culture of convenience and pace of life are to blame I guess (things have changed old foggies). Who can blame the youngsters for wanting what they see on TV as "normal". I think we all kinda want that don't we? I also believe in the mantra of work smart, work hard, play hard and you'll be rewarded so if I do make a mint in my life – don't come along and say "hey you rich old guy – give us your money because we're young and need it more than you". When the baby boomers have finally retired and if Canada properly promotes and rewards innovators and entrepreneur (so there are actually jobs for people) we'll see some swing back and the Gen X and Gen Y folks can get our kids to bail us out when we get old and have nothing.

    • As long as yours is not indexed when you retire, then I am all for it. But somehow I think you will see it otherwise when you get to your retirement.

  9. he statistics actually show more 55 years and over citizens are the ones using the debt to finance thier lifestyles!!! Remeber the youth actually went to school and had to learn how to manage money, not sit back the last 15years of thier working life because the union will take of them

  10. http://brianelwinpomeroy.posterous.com/the-politi… (Knowing about money is the key no matter your age. Circumstance favored the baby boomer because there were always more of them. In Calgary, Alberta we just elected the first Muslim Mayor and I believe it is because the young people got off their butts and got him in. He stood up to the old guard at city hall and the police dept. and everyone saw that the sky did not fall. Hopefully he will not sell out like Obama but that is a different subject.
    Only YOU can make a difference in politics so when the system is stacked against you, talk to someone for a better solution. For example, I have encouraged people to walk away from their mortgages if the bank will not negotiate. They got people into houses they could not afford and now some of the mortgages are backed by false paper, another good reason to hire counsel.
    Financial planning has not changed except that interest rates HAVE to go back up some day. Follow the money and make sure you are not on the wrong side of future calculations. When interest rates go up make sure you are lending and not borrowing.
    Brian Elwin Pomeroy)

  11. My sons all went into the trades and as such are enjoying increasing incomes and full employment. As a volunteer teacher in my home town, I was discouraged to see parents and teachers alike telling the students that "you have to go to university". A lot of the kids went to university baised on that, and now are dissappointed with the options that are available to them.
    Let us all try and direct our young people where their apptitudes lay and not what direction we think they should go.
    They might not be a lot richer, but they will certainly be happier.

  12. Thanks to everyone for their comments on the story. The source of the data is Statistics Canada.

    Just to be clear, the data shows that young people today have slightly less income compared with young people thirty years ago, while older people have significantly more income than older people in the previous generation. It's not just an issue that older people have more because they worked longer to achieve it, although of course that's true too. I'll try to get the graphs that ran with the story up.

  13. One critical but unmentioned point … years ago, retirement incomes may not have been economically sustainable. In other words, putting food on the table, a roof over one's head and clothes on one's back may have been difficult if not impossible. As such, a large percentage increase in income may simply have righted a wrong and not created some sort of überclass.

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  15. I think a lot of this has to do with maturity. Maturity being the gap between freedom and responsibility. A 20 year old today has much more freedom and much less responsibility than a 20 year old 30 years ago.

    With their freedom, they buy. Without responsibility, they rack up debt.

  16. I have been doing alot of investigation into Canada's immigration policy and how it effects the work force. This is no attempt to take a shot at the fellow above. Canada allows 250,000 immigrants a year, every year. Their wealth and educational levels are on average less than the domestic population. Over time this can do nothing but erode the national standard of living and decrease our productivity. I have read comment from some economists that this is done on purpose by the government in order to supply cheap labour for business. Call it a conspiracy theory if you want but do the research and you might be surprised.

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