In May 2019, Democratic presidential candidate Joe Biden caused a small media storm when comments he made that he had no empathy for millennials who argue they face more difficult economic circumstances than previous generations circulated on social media. Biden was only the most recent public figure to weigh in on what’s become a hot topic over the past few years.
Certainly things are not looking good economically in the United States, or in other parts of the globe. There are a number of reports and new stories of millennials faring worse than previous generations, and according to a recent OECD report, millennials in the world’s wealthiest countries are feeling the brunt of the decline of the middle class. In Canada, Statistics Canada has observed that the income inequality gap has been widening for a few decades, in all generations.
Last April, Statistics Canada released an analysis that dug deeper into the economic well-being of millennials and compared it to similar-aged Generation X (Gen X) and baby boomers. The data gives insights into some key economic indicators of millennials, including: wealth, homeownership, and debt accumulation.
As the topic of inequality and affordability is set to dominate the 2019 federal election campaign period, a closer look at how millennials — the largest voting block including their Gen Z associates — are faring economically, is warranted. While there is lots of good news in this analysis, Statistics Canada found that income and wealth inequality have been worsening over the past several decades, with no real end in sight. Below presents a snapshot of the economic picture of millennials in Canada.
Measurements
For their analysis, Statistics Canada used three different surveys to gather information on millennials – defined as persons between the ages of 25 and 34 in 2016 – and compared it with snapshots of Gen X and baby boomers in the same age range. For Gen X, Statistics Canada used data from 1999 when they were between 25 and 34. For baby boomers, the reference year was 1984. All dollars were adjusted for inflation using the Consumer Price Index, so they can be directly compared.
The good news: incomes are rising
Statistics Canada found both good news and bad news for millennials. Some good news is that millennials are earning more than previous generations did at their age: median after tax income is $44,093, which is about 32% higher than both baby boomers and Gen Xers, who had similar incomes in their reference years. While millennials are carrying more debt earlier in life than previous generations, separating millennials into those who own their principal residence and those who don’t makes it clear that most of this is mortgage debt. Millennials who own homes are carrying a median of $245,000 in debt, compared to $8,000 for those who don’t own homes.
Despite higher home prices and higher mortgages, millennials are entering the housing market at about the same rate as previous generations did; about 51% of millennials age 30-34 owned a home, compared to 51% of Gen Xers and 55% of baby boomers at the same age. Statistics Canada’s findings on education are consistent with other surveys: millennials are the most educated generation, with 70% of 30-34-year-olds holding a post-secondary credential.
Another good sign is that net income in the bottom 10% of Canadians is growing. Between 1995 and 2017 their income grew almost 36% to $14,400. Millennials have a real median after tax income that Gen X reached between age 40 and 49, and baby boomers reached between age 55 to 64.
One thing you may notice about all of these findings is that Statistics Canada used the median to compare incomes, net worth, debt and assets. This suggests the underlying data is skewed, meaning individuals’ net worth, assets, debts and incomes are clustered at either the high or low end of the spectrum. Skew in data is neither inherently good or bad, but it does pull the average away from the middle of the data. The median, or the data point at exactly the fiftieth percentile, gives more information about the middle of the data than the average when data is skewed.
The bad news: inequality is rising
Income and wealth inequality are far worse for millennials than any other generation. To measure this, Statistics Canada looked at the difference between the net worth of those in the top 25% and those in the bottom 25%. Using this comparison gives an idea of how spread out the data is, without being skewed by extremely high or extremely low incomes. For millennials, this was a difference of $244,350; over twice the difference in wealth for Gen X. This indicates that the gap between wealthy and low-income Canadians is expanding, which should worry anyone concerned with fostering an equitable economy.
The role of homeownership in wealth inequality
When taking into account home ownership, the differences are even greater, particularly in income. Millennials who own a home earn more than twice the after-tax income as those who don’t. Adding higher incomes with homeownership, the differences in wealth inequality in the top and bottom 10% of millennials is even more staggering at $591,807. For Gen X it was $289,686. Again, these figures are all in 2016 constant dollars, so inflation has been accounted for.
Millennials who owned their principal residence are clearly on a different wealth trajectory than those who don’t. By age 34, these millennials are sitting on an asset with a median value of $329,000, about 1.8 times what Gen Xers owned, and 2.4 times what baby boomers owned. Millennials who did not own their home had a median net worth of $18,400 compared to $261,916 for those who did. Millennials who own their home are not carrying significantly more mortgage debt than Gen Xers were either: about 66% of the value of their principal residence compared to Gen X with 64% at the same age.
The overwhelming majority of millennials who own their homes will continue to pay down their mortgage debt while the value of their asset increases. This puts them on a path that will be difficult to match by the millennials who didn’t own their homes in 2016. If this trend continues, the gap in net worth between millennials in the top 25% and the bottom 25% will continue to grow.
There are some major gaps in the economic analysis done by Statistics Canada. There is no breakdown in the analysis of gender, never mind equity seeking groups such as Indigenous, racialized, immigrant, LGBTQ2IA+, or differently-abled millennials. It is understandable that this data would be difficult to find, particularly when comparing millennials in equity seeking groups to previous generations. But Statistics Canada failed to even acknowledge that these Canadians face greater barriers to employment, and therefore greater challenges accumulating assets and income. For example, I wonder if the income gap between racialized and white Canadians will continue to widen as millennials age.
In any event, the upshot of Statistics Canada’s analysis is the widening of the income distribution, leading to greater inequality among all millennials.
Moving forward: no easy answers
The increasing inequality among millennials as outlined above is due to a number of complicated issues. Addressing the growing inequality gap requires better data and a systemic approach to the problem.
Looking at the two groups of millennials, those who own homes and those who don’t, there are likely underlying differences that made it possible for one group to invest in the housing market while the other group couldn’t. One difference could be the persistent gender and racialized income gap, as mentioned above. As Statistics Canada didn’t even make a cursory attempt to parse this information out in their analysis, the demographic makeup of millennials who don’t own homes remains unknown.
Another likelier difference, I would argue, is the net worth of their families. It stands to reason that millennials who were able to invest in the housing market by 2016, even when it was considered severely unaffordable, are those who had financial help from family members. This could be in the form of a direct cash transfer for a down payment, but it could also take other forms. Millennials whose families made it possible to achieve post-secondary credentials without student debt, who lived at home longer, or who had financial assistance from their families so they could pursue low- or non-paying internships or training programs in high paying fields would have had an advantage in saving enough of their own money to invest in the housing market by the time they were 30.
And this is a key take away from this data: without policies in place to ensure social mobility, such as increasing government funding to ensure anyone admitted to post-secondary programs can graduate without student debt —wealth generates wealth from generation to generation.
Without policy interventions that are based on data and a solid understanding of the issues that need to be addressed, inequality will continue to grow as millennials age — impacting future generations and their economic outcomes. Gen Z will soon be entering adulthood in an entirely different economy, where work is more precarious; housing affordability and availability is overly reliant on the market; and with an outdated social security net. Targeted policy reforms are needed to disrupt this downward trend, or inequality will continue to worsen for future generations.
