Millennials and Generation X Face Economic Struggles in the Coming Months: RBC Warning

OTTAWA – Millennials and young adults of Generation X are likely to struggle economically in the coming months, warns the bank RBC.

In an analysis released Wednesday, the bank said Canadians aged 35 to 44 with debt had a debt-to-income ratio of 250% in 2019 compared to 150% a decade earlier. The situation of those under 35 is also precarious with a debt-to-income ratio of 165%.

And those numbers have only grown over the past four years as globally, Statistics Canada reports that the debt-to-income ratio for Canadians of all ages was 184.5% in the first quarter of this year, in up from 181.7% a quarter earlier.

However, due to the rapid rise in interest rates, homeowners who will have to renew their mortgage in the coming months will see their monthly payments jump by 25% at the start of 2024, estimates the RBC.

Generation gap

The impact on young owners will be drastic, much more so than on older owners, whose debt ratio is significantly lower overall, warns the bank. It is that in comparison, only 14% of baby boomers still have a mortgage to pay and for those who have one, it is on average half as high as that of millennials, underlines the RBC.

It must be said that, according to federal data, millennials are slightly more numerous (23.3%) on average than baby boomers (22.3%) to reside in the six major urban centers of more than a million inhabitants of Canada, exceeding the boomers in Montreal and Ottawa-Gatineau, as well as in Toronto and Vancouver, cities where real estate is more expensive than elsewhere.

To make matters worse for the generation gap, boomers have amassed a comfortable investment cushion that allows them to enrich themselves from rising interest rates. Two-thirds of baby boomers also no longer depend on employment income to live, but on private pension funds and government transfers, underlines the RBC.

Towards an increase in unemployment

Conversely, young owners are entirely dependent on employment income which, although it has increased since the start of the pandemic, is not keeping up with the rise in interest rates: “The average hourly wage has increased by 12%, less than half of the increase in five-year fixed mortgage interest rates,” notes the RBC.

These wages, which are no match for the rise in house prices, could moreover vanish for many young people in the coming months, as more and more companies are forced to slow down to cope with the rise. interest rates: CIBC predicts in a report released Tuesday that the unemployment rate will climb above the 6% mark by the start of 2024.