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You had your best-laid plans and then COVID-19 came along and hammered the entire economy. But you’ve got this – if you have the right information. Join Rob Carrick and Roma Luciw on Stress Test, a podcast guiding you through one of the biggest challenges your finances will ever face.

ROMA: You did what you were “supposed” to do to get ahead. You got a college or university degree, landed a good job, paid down your debt, tried to save money. Maybe you did all this stuff.

ROB: But then inflation spiked, salaries stagnated and house prices soared. This combo gets in the way of Millennials and Gen Zs achieving the middle class lifestyle that older generations enjoyed.

ROMA: Welcome to Stress Test, a personal finance podcast for Millennials and Gen Z.

ROB: I’m Rob Carrick, personal finance columnist at the Globe and Mail.

ROMA: And I’m Roma Luciw, personal finance editor.

ROB: Our episode this week is inspired by Globe contributor Bridget Casey. She wrote a column arguing that there’s no millennial middle class. Roma, what was the gist of that column?

ROMA: Well, you basically laid it out. She poked holes in this idea that all millennials are worse off than their parents. And she basically said the reality is more nuanced. Today’s millennials consist of a small number who are thriving financially early in life. They’re basically quite wealthy and everyone else is not. So to break it down by numbers, she wrote that 10 per cent of Millennials hold 55% of the total wealth of their generation. They tend to be homeowners, they have low debts, high levels of savings, investments. They’re thriving while the bottom 90% are struggling. Rob, how did we get here?

ROB: WellI think a large part of it is house prices soaring into the stratosphere and incomes not. So you’ve got this giant gap between what people can afford to buy and the price of houses. And let’s face it, we define our middle class existence in large part by whether we can get into the housing market. I mean, middle class life in Canada was defined by, I own a house. That’s a core of my middle class existence. And there’s a huge and growing group that cannot get in. They feel they have set themselves up in the way their parents did. They’re knocking on the door but nobody’s answering. They cannot afford to get in.

ROMA: So we know this column resonated with young Canadians. There were over a thousand comments on various Reddit threads. One of them really stood out to me. It was a young man that wrote he feels there’s a significant class of Millennials who are in limbo now. They have no debt, they have decent savings. They have no ability to buy a home. So they’re not hurting, but they’re not making any forward progress. And I think that’s a very difficult position to be in.

ROB: After the break, we hear from one of the Reddit commenters on why he feels stuck outside the middle class despite making an average income and living debt free.

CODY: My name is Cody. I’m 33 from Burlington living in Hamilton, Ontario

ROMA: Cody works in sales. He and his wife rent an apartment and his sons, aged 7 and 10,  live with them part time. Cody finished high school and his wife has a college degree. Their household income is about $140,000, but they don’t see themselves as middle class.

CODY: I feel like I’m still just getting started, even though I’ve been starting for many years now. I’ve been worried about it for a good 10 years. And it doesn’t feel like I’ve gotten any further along.

ROMA: Cody started saving when he was 25. He and his wife have set aside about $20,000 for a downpayment. But, she is self-employed and just started her career 8 months ago. That means the bank will only approve them for a mortgage of $300,000. That isn’t close to enough to buy something where they live. Cody just feels like the goalposts keep moving.

CODY: We don’t have any debt. And at first I was told that if, when I went to go look into the mortgages, and when she was about to graduate, we were told oh, work on your credit, and come back. And then I found out that basically as long as it’s about 650 you’re good to qualify for a mortgage. I’ve never been below 650. I’ve never had any debt. I felt honestly lied to, because the real problem is that my income just isn’t enough. My income is basically the average in the province. I don’t understand the barriers to entry for getting my first house and getting going. And feeling like I’m established. I’m 33, with no debt, what is the problem here? Like, I’m afraid to owe people money. I should be the ideal person that you should feel comfortable giving a loan to. But instead, yeah, I’m the last person I guess.

ROMA: They aren’t able to move away from the region because he shares custody of his kids with their mother. Still, they’re determined to buy a home.

CODY: Because I don’t want to pay rent. Because so much of my money goes into rent, and it’s a waste. But also we feel stuck here too, because you know, we’re paying $1250 for a two bedroom apartment with a washer and dishwasher. You know, I mean, like that’s hard to find. If we got the same apartment in the same complex, we’re at least $1800 right now. So even though, I work from home so I’ve grown to despise this place, and I hate this apartment, but there’s nothing. It’s we’re here until we can buy and that just is getting further and further away. It feels like rather than closer. And I keep feeling like we’re so close that’s the problem too is like we’re able to save so much money and it feels like okay, this is it. This is it. And like oh now my credit. Now we have the down payment. Now we have this, now we have that and it’s just brick wall after brick wall. Surprise, brick wall two.

ROMA: Looking back, Cody says he would’ve put more money away and got into the market earlier. But he believes the government and banks should make it easier for people to get into their first homes. For him, the concept of the middle class and homeownership are tied together.

CODY: I don’t know if all cultures and places are like this, but it seems like that’s what you do once you’re in the middle class in Canada, is purchasing that house. And that’s a huge part of your retirement. And what if you want to, you know, borrow any money, or any loans or anything, that’s a huge asset that they all look for. I just don’t feel like there really is a middle class like, I feel like I would so rock solidly fit. Like literally, if you look up, what’s the average salary? That’s, that’s what I’m making. You know what I mean? Like it seems like I shouldn’t feel, you know, like I’m behind. I’m doing what’s asked of me. So I don’t feel like there is a middle class. It feels like when my mom was a waitress going through school, our apartment was not terribly different from this, you know, as a single mother raising the hell out of me. This is about, this is on par with what we had, you know.

ROMA: Cody’s mom and stepdad saved up and bought a townhouse 15 years ago for about $250,000. The same model now sells for $800,000. It leaves Cody frustrated and worried that without buying property, he’ll never be able to retire.

CODY: Constantly. That’s my number one goal. I am so tired of making other assholes rich, I am ready to relax and make the choices and do the things I want to do. I’m afraid to work all my life. That’s what I’m afraid of. So I’ve always been worried about retirement. And then house ownership is the first step towards in that direction. So. I thought I could save aggressively and live frugally enough and you know, do it on my own accord. And I didn’t find out until a few months ago, at 33, that that was not an option, that that is impossible unless I’m making like 200k a year. It’s the most frustrating thing, because I just spent so many years thinking I was getting closer to that.

ROMA: You can really feel Cody’s frustration. And I know a lot of you can relate. Next up, we’ll hear from an intergenerational expert on why Cody is far from alone in struggling to get into the middle class.

ROB: Paul Kershaw is a professor at the University of British Columbia and founder of Generation Squeeze,  a group that researches intergenerational fairness. He joined us to discuss why many millennials feel like the middle class is dead. To start off with Paul, can you define for us what middle class means?

PAUL: I do tend to find myself going to what’s an OECD definition where, you know, it’s someone making somewhere between 75 and 200% of house average household income, or median household income. But I actually don’t find it a very compelling definition to be honest with you. Because when I, when I go and look at what people think is the middle class, I’m struck by how literally, I believe it shows like 90 plus percent of people self identify as being in the middle class. And that makes me think something really interesting is going on. Notably, nobody thinks they’re rich. You don’t just have to be Jeff Bezos or Elon Musk to be rich. And I think that we’ve lost track of how people with decent earnings in homes that have so skyrocketed are now among, you know, not living a middle class lifestyle, but they should be considered more affluent. And that’s a hard thing to talk about in Canadian society these days.

ROB: So Paul, how do you think the millennial middle class compares to the middle class of other generations? You cited the OECD, it has a report that says about 59% of Canadian Millennials are middle class compared to 70% of Boomers at the same age. Does that ring true to you?

PAUL: Yeah, I’m not sure about the specific data points. But the idea that there are fewer young people experience a middle class standard of living today is, I would say, beyond contestation in the data. Like younger folks go to post secondary more, pay more for the privilege, to land jobs with earnings after adjusting for inflation are down thousands of dollars, only to face housing prices that are up hundreds of thousands of dollars, pushing homeownership out of reach for more.  Then as a result, they’re competing more for the available rental, their consolation prize is rising rents. They’re delaying starting their own homes. That means they delay starting their families. When they can delay no longer because their biological clocks are tick tocking, they then face childcare that has been another rent sized cost in their lives. You don’t have the success sequence for a younger demographic, go to school, land a good job, and then you too can afford secure housing that allows you to start your family in easy way. That is so much further out of reach these days, by comparison with just a few decades ago.

ROB: Why is the middle class shrinking?

PAUL: I think it is a fundamental combination of the earnings that people make. The earnings are down for a younger demographic, slightly up for an older demographic. It’s not the earnings story that is like defining what is middle classness or shaping that standard of living. It’s the growing gap between what full time earnings can pay for and the cost of our major cost of living housing. That gap is fundamentally transforming the standard of living in Canada in a very harmful way for younger Canadians. And then we use many cultural tropes or myths to distract them from this reality. We talk about their latte drinking their avocado eating their holding of cell phones, and we’re individualizing the problem saying if only you didn’t do those things, you too would be able to bridge the gap between what full time earnings pays and this obscene cost of living now for housing, but of course that’s not true. The system has tolerated a relentless increase in housing prices over now decades, that has eroded the way that hard work pays off for younger Canadians. Here’s one of my favorite stats. When my mum started out in the housing market in the mid 1970s as a young Canadian woman, it took five years of full time work to save a 20% downpayment on an average priced home in this country. It was the case in Metro Vancouver where my mom happened to be in BC, in Ontario, in the GTA, across Canada, about five, five to six years. But if you flash forward to today in Canada on average, now it is 17 years. It’s over 20 in Ontario and BC and in the GTA and Metro Vancouver, it’s like 27 years. Just think about what that means for how much more hard work is required to simply try and cobble together a down payment. On an average home, which is more often not in our cities a condo with a balcony, not some home that has access to a yard.

ROB: Now culturally in Canada, how important is home ownership to the idea of being middle class? Are they intertwined? Is it a done deal if you’re middle class, you could get a house? Is that the historical norm in Canada?

PAUL: I think it was the historical norm. I don’t know what if it’s the case going forward any longer. I certainly know many talented Millennial and Gen Z, more so than the Gen Xers, and Millennials and Gen Z being hammered more by the high housing prices. So people with master’s degrees, decent paying jobs for whom homeownership is not likely in their reach. So they’re starting to move away from contemplating it. And you can see, you can feel them wrestling and being frustrated, sometimes worried, what am I doing wrong? Am I failing? How can my parents do this? How am I not living up to what my parents did? They worked hard for me, I’m failing them. And so there’s so much anxiety amongst a younger demographic, because of the way in which housing, homeownership has been pushed out of reach. And then you’re trying to figure out how to cobble together a good, stable, secure home of which you can be proud as a renter. And there’s not enough of it. And many are needing to find homes, as renters in in somebody else’s investment property. So you have like somebody who’s older after a boomer who’s bought a second home, they’re treating as a rental, which isn’t a problem in and of itself. But it’s an asset for someone else who’s got that affluence and when their life course requires them to say, Oh, the price has reached a value that’s good for me, or I just need to tap into this equity in a different way I’m going to sell and then that destabilizes the family that was trying to make the home. And that is the reality facing younger Canadians. One last caveat though. There are many cool cities on this planet where homeownership has not been the norm for some time, whether that’s New York, or London, or many parts of Europe. And so I do think we can have a proud, younger middle class that makes home as renters. But then we need to level the playing field between the way that policy supports homeowners and policy doesn’t support renters. And I think that will be a key conversation if we do redefine middle classness in the future.

ROB: All the surveys I’ve seen suggest they are extremely focused on getting into the housing market. Now. Let’s talk some numbers. What is the homeownership rate for Millennials and how does it compare to older generations?

PAUL: So back in 1977, over 40% of people under 35 were homeowners and now it’s down to around 35 to 36%. Thirty-five to 44 year olds back in the day, around 1977, fully, almost three quarters of them were homeowners now it’s down to just over 60%. So those are some significant declines in home ownership, according to Statistics Canada data across decades. Housing is the quintessential generational tension in Canadian society. High home prices aren’t uniformly bad or uniformly good. It’s all about your timing. And the timing is often a lottery when you were born. And so for those who got in the housing market some time ago, homeownership has been an increasingly available thing as you’ve aged. For those starting more recently, it’s increasingly out of reach. And then you talked just a moment ago, Rob about how a younger demographic the polling suggests they want to get into homeownership. Well, how can you blame them? It looks like a lovely gravy train. If you’re seeing others around you getting wealthier while they’re sleeping, or cooking or watching TV and having a nice home with some security. Why wouldn’t you want that for yourself? But this is a challenge because it reflects a broader cultural orientation or what I would dare say is almost a cultural addiction in Canada to high and rising home values. People of various age groups are entangled in a hope that once they get into the housing market, home prices will continue to rise, which is good for an individual but horrible for the system, especially for those who follow in our footsteps.

ROB: Paul, how has the pandemic affected the middle class of young adults compared to other generations?

PAUL: Well, I really hope that listeners will take away that it’s not the pandemic where we’re seeing the sudden moment of middle class deterioration or hollowing out for younger Canadians. This has been a relentless, multi year, decades long trajectory. You can see it start to some degree in the 80s. But it really took off after the year 2000. But then what happened in the pandemic is two important things. We had low interest rates go even lower still to this ultra loose monetary policy, which allowed people to borrow even more, to bid up the cost of housing. Because that’s what Canadians do when we borrow, we don’t invest in things, as much as we should, outside of real estate, we bring it into real estate, we bid up the price of housing. Simultaneously, the pandemic shoved so many people to work from home and away from their place of employment, which freed up an opportunity for people to think, oh, I don’t have to live that close to major urban centers. I can move further afield. And so as the pandemic was spreading the contagion of COVID-19, the combination of ultra low interest rates and the ability to move further from where we work helped to spread the epidemic of housing unaffordability and housing wealth inequality, which is why we have seen the most dramatic increases in housing prices at a percentage level in more modest sized communities, especially in BC and Ontario over the last two years.

ROB: What does it mean to young people if to get into the housing market, they need a million dollar mortgage?

PAUL: Yeah, you know, this is what makes systems change so darn challenging. So many hard working talented, fortunate, younger folks have managed to secure incomes with low interest rates that allow them to borrow, what not that long ago would have been viewed as an obscene amount of money. And so they’ve taken on substantial debt risks to pursue homeownership, something that signaled incentivized by policy and our cultural alike. But then, of course, we’ve got a now a group of young folks, this is the Gen squeezed demographic, who are now priced into desperately hoping home prices don’t fall. Because that starts to then put them at real financial risk. And so the very demographic that has had to scrape and work tirelessly to try and hack into this dysfunctional housing system takes a great amount of work, education success, and a lot of borrowing to do so, and then gets oriented around, oh, I hope that it can home prices continue to rise so that I can benefit and I, at the very least, don’t get underwater with a large debt relative to what the value of my asset becomes in time. And so then we lock the younger demographic into hoping that the very problem that they’ve been suffering will continue to persist and worsen for those who follow, which aka will be their kids, this is the tragedy that we need to break, we need to ask that younger demographic, we need to be the change. We need to know how hard it has been to hack into the system. And know that we can’t want that for those who follow. Even as we know, we’ve taken on these risks. And so, you know, we have to like hope that home prices stall and we don’t fall under water. But at the same time, we can’t want it to be the gravy train for us that it has been for many before.

ROB: Aside from home ownership, what defines a middle class life?

PAUL: I think that it’s a sense of security. I think when we’re talking about the hollowing out of the middle class for a younger demographic, we are eroding the security. And let’s just be clear how profound that can be. Because when you erode security, you have people defer delay doing some of the most fundamentally important things in our lives. In the last few decades, we’ve seen a rapid increase in the average age of women giving birth. Now, we this especially in BC, which has had the highest levels of unaffordability. Why is Paul talking about this right now, because it’s reflecting a coping mechanism in response to a lack of security in housing and a lack of affordability. And so people say, I’m not going to have my kids just yet. But then you reach a biological moment where your clock is tik tocking, tik tocking, and you can only delay so long. And so people are then launching into having their kids later on. So we are missing out on love, we’re missing out on having the kids and any parent will tell you kids can be stressful and hard. But the people will also self-define by saying kids were the most important thing in my life. And I’ll backup even one moment before having kids. In the early 1980s, the typical 20 year old was more likely to be living with a significant other than living at home with adult parents. If you flash forward to today, the typical 20 something year old is more likely to be living at home with older parents than actually finding a way to couple up with a significant other. That’s talking about how the hollowing out of the middle class for younger folks is eroding the ability to have our love lives. And that is so darn significant.

ROB: Well, I’m struck by the lack of interest and concern on the part of politicians and older generations to these problems. They’ve been apparent since the financial crisis in this boomerang generation of young people having to move home. We haven’t really made any progress in addressing their concerns. At the same time as these concerns have become a lot more acute. Why do you think no one in a position of power seems willing or interested to do anything about this hollowing out of the middle class for young people in particular?

PAUL: I think this goes to an earlier part of our conversation. We have this cultural addiction to high and rising home prices. The hollowing out of the middle class has been harmful for a younger demographic, but it has been positive for an older demographic, and I’m pretty darn middle aged at this point. And so you can see how people can get normalized, we can normalize and get accustomed to like, oh, the home, the housing I purchased to make a home for myself and my kids etc. can also be a great and easy way to have a lovely standard of living down the road in retirement. And we have a world of politics that is nervous about disrupting that in no small part for two reasons. One, older folks are more likely to vote. Two, we have cultural narratives that incline us to think not only are there lazy millennials who drink too much coffee and eat too many pieces of avocado toast, but that we have the myth of the poor retiree or the poor senior. But the seniors actually have the lowest rates of poverty of any age group in the country. And the Canadian Association of Retired Persons brags that they have the most wealth. And so we have a mismatch between who we think is economically vulnerable and who actually is in the world of politics.

ROB: Further to inequality, how important is it to the financial success of a young adult of getting into and even up out of the middle class, how important is it to have parents who are wealthy and who are financially secure?

PAUL: Well, unfortunately, it seems to be becoming more and more important, which is a problem for intergenerational fairness. It’s a problem just for equality of opportunity in this country. And I will confess, I just can’t stand the phrase the Bank of mum and dad. The Bank of mum and dad implies that many young adults today are, you know, they’re infantilized, they’re still being children because they can’t break their reliance on parents’ largesse. And it’s only because the parents are working hard and being noble and caring for their kids in an ongoing way that, of course, that’s how they’re helping out their kids to somehow make up for their inadequacies as becoming young adults. Because they’re not able to make a home on their own without financial support. But that further fuels the individualization of the problem and doesn’t represent the reality of why does an agent group of people who are now being talked about as the Bank of Mum and Dad, why do they have that equity increase in their homes? Because their kids’ generations have gone to school longer, accepted jobs that pay less, and been tolerating working harder and harder and harder to try and pay for the major cost of living, housing, via their rent or in bidding up the cost of housing as they borrow more from a bank. It’s the hard work of a younger demographic that’s growing the equity of the quote unquote bank of mum and dad who we so valorize, we so speak of proudly. And then we make a younger demographic feel like they are failing. And yet it’s their hard work that is actually growing the banks of those older aging mums and dads. We need to reframe around that and make sure that we acknowledge with pride, just how darn hard a younger demographic is working to try and straddle the gap between full-time earnings that have lost ground relative to the major cost of living. And then your question. So what does that mean, if you can’t do that? What if you don’t hack into this broken, or this dysfunctional housing system, this housing system is working great for an older demographic people like me are getting wealthier, it’s just hurting a younger demographic, you can’t hack into that, then we do have a risk that today’s younger folks who have high levels of economic insecurity, in a few decades when they become retirees, we’ll have more income insecurity. And so right now, seniors have the lowest rates of poverty and the most wealth, but we may not see that when this millennial group reaches their own period of being retirees down the road.

ROB: Paul our conversation has been a bit on the downer side. What can you offer young adults that offers encouragement that they will make it into the middle class, that they will have a financially successful life and a full life experiences with family and home ownership and everything else?

PAUL: Oh great, let’s end with hope. So first, there remains time for us to beg and plead with our political leaders to say, minimally, to restore affordability for all we need home prices to stall so that earnings can catch up. That becomes the pathway back for a younger demographic to experience the kind of middle class standard of living that had become the norm a couple of decades ago. And clearly, home prices are gonna have to stall with earnings rising for many years ahead to make that a reality. It’s not a one year kind of stall. This is a many years of home prices stalling so earnings can catch up. That could still be in our reach. And how do we bring it about? Well, we can tap into something that does exist at the intergenerational table, that it does exist within families – love. There is a tension between older and younger Canadians, but within families, mums and grandmas love their kids and grandchildren. And I think that we can tap into that familial love that is pervasive throughout Canadian society, and then work hard to bring it into the world of politics. And we are going to need an older demographic who has their own financial insecurities and worries about what it’s gonna look like to be aging in the contemporary context. But have them not only focus on the cultural orientation we have right now worrying about an aging population. But can they use their voices in defense of themselves and their kids and grandchildren? Can we invite that older population? And can Millennials and Gen Z work with their parents to say, how do we help you leave a proud legacy for us and those who follow in our footsteps? Because right now, the history books are not necessarily going to judge the Baby Boom population I think as well as many of those hard working Baby Boomers want them to be judged. The housing system has been broken under their watch, the climate is being broken under their watch, we’re leaving larger government debts than have ever you know, then were inherited by Baby Boomers. These are some negatives about the legacy. I don’t think it’s what, you know, the aging family members in my life want to leave for me in their, you know, the younger kids in our family. And so I think that it is the love that we tap into, to fix the situation.

ROB: Who knew a personal finance podcast would land on love as a solution to the problems faced by Millennials and Gen Z. Roma, what’s your reaction to what we heard today?

ROMA: Well it’s frustrating and upsetting. As personal finance journalists we’re here to present solutions and takeaways. And this is something for which there’s no easy answer. I mean, what is the way forward?

ROB: So frustrating for us because I would love to be able to tell Millennials, “You take Steps A, B and C, you save harder and spend less and do this and do that and you’ll be fine.” And yet I don’t have a roadmap out of this. I think that I would totally encourage people to stick to personal finance basics like managing your debt, and investing aggressively for the future and keeping some sayings on hand. But i think we have to recognize the world is changing rapidly. I don’t think the final chapter has been written on millennials and the middle class. You know housing is evolving, it’s slowing down. Maybe things will get brighter. I don’t want to eliminate all hope.

ROMA: That said, we’ll urge you to take these takeaways with a grain of salt. One, if you are feeling frustrated or stuck about your progression, you are not alone. Know that the current economic and housing reality IS indeed stacked against you. Two, the pandemic has intensified the inequities that were already in place. But no one knows what the future holds - so keep your debt levels low, save as much as you can, and be ready in case an opportunity opens up in the housing market. Three, if you are in your 20s or 30s, you have time to reach some milestones. You will work and live longer than previous generations, giving you more time to buy a home, build your savings and, yes, retire.

ROB: Thank you for listening to Stress Test. This show was produced by Kyle Fulton, Emily Jackson and Zahra Khozema. Our executive producer is Kiran Rana. Thank you to Cody and Paul Kershaw for joining us this week. And a shout out to Paul’s podcast Hard Truths - give it a listen.

ROMA: You can find Stress Test on Apple Podcasts, Google Play, Spotify or your favourite podcast app. If you liked this episode, please give us a five- star rating on Apple podcasts and share it with your friends.

Next up on Stress Test. You’re worried about climate change, but you also want to make money. Can you be a successful green investor? We explore the growing field of socially responsible investing, and ask how you can balance ethical concerns with financial goals.

ROB: Until then, find us at the Globe and Mail dot com. Thanks for listening.