Conditions for launching as an adult are brutal today as a result of the high cost of both renting and home ownership. Globe and Mail personal finance reporter Erica Alini tells this story in an article that makes you wonder about the future of Canada as a place where young people can achieve financial independence as an adult. A point in the story that resonated with me is that half of young adults today live with parents or roommates. To hear more, I asked Erica to do a Q&A – here’s our exchange by e-mail:
Q: Erica, can you tell us why you decided to tackle this story?
A: I wanted to quantify the financial costs of starting out as a young adult to help Canadian families with some of the difficult conversations that are happening around dinner tables right now. In a growing number of big and mid-sized cities, impossibly high housing and rental costs are forcing younger millennial or Gen Z Canadians and their parents to ask themselves: Should the kids stay at home after graduating from school? Will they be able to pursue their dream job and continue to live in their hometown? Will they have to move far away from home to buy a house? I also wanted to look at the larger implications of the housing affordability crisis and young people’s financial struggles – what it means for income mobility and the Canada’s economy overall.
Q: Your story is strong stuff. How did you feel after researching and writing it?
A: There was certainly one big surprise. I kept thinking: “With rents so high, how can people save up for a down payment on a house?” But when I looked at the numbers, I realized that this may not even be the issue. With interest rates climbing, saving for a colossal down payment is only part of the huge hurdle you have to clear as a first-time homebuyer. In a growing number of cities, you’ll also need a very high household income to be able to manage very large mortgage payments. In all the cities I looked, an income high enough to pay for a rent at current rates and save up just enough for a minimum down payment on an average-priced home may not be enough to qualify for a mortgage on that home. Another surprise – a heartwarming one – was to hear from older parents who have absolutely no issues letting their children live with them well into their 20s or 30s to help them save up. That no longer carries a stigma, I was told. But the flip side of this growing intergenerational solidarity is: What is happening to the kids who cannot count on family help?
Q: Can you explain how what’s happening to young adults today differs from the aftermath of the 2008-09 global financial crisis, when everyone was going on about kids moving back home?
A: For the older millennials who graduated during or right after the financial crisis, the big challenge was finding a job. But with record labour shortages, getting a paycheque these days is not the issue for young graduates (at least not as long as the job market remains strong). Younger Canadians are living with their parents for much longer because of the stratospheric cost of either renting or buying a home of their own. Census data show 35 per cent of people in their 20s and early thirties live at home. Another 15 per cent in the same age range live with roommates. That’s half of young adults not living in a home of their own.
Q: The latest census data shows the home ownership rate in Canada is in decline, notably among young adults? Do you see potential for a rebound, based on the affordability factors you wrote about?
A: I don’t see any reason to feel optimistic, unfortunately. The latest data I saw showed declining home prices slightly outweighing the impact of rising interest rates in terms of overall affordability. But the gains were marginal and those numbers predated the latest interest rate hike by the Bank of Canada. If we hit a recession, home prices may fall. But that holds for incomes as well – and job losses tend to hit younger workers especially hard in an economic downturn.
Q: Are there any cities or regions that offer young adults cheap rents and affordable housing?
A: Of the cities I looked at, Calgary took the cake in terms of both rental and housing affordability. Montreal is still holding up well – even though it is becoming more expensive – and Ottawa looks like a good place to be if you’re a young professional. The national capital is getting pretty pricey, but what I found is that incomes for 20- and 30-somethings with a university degree are quite competitive. Mike Moffatt, an economist I interviewed for the story, suggested this could be because government jobs have higher entry-level salaries.
Q: If you had kids just graduating from university, what would you tell them about the economics of launching as an adult?
A: I would tell them that they face a tremendous financial crunch and that I will do my very best as a parent to help them through it. I would also tell them that they should be very frank with their friends and peers about any help they’re receiving – even if it’s just living at home rent-free – because it gives them a tremendous leg up.
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Rob’s personal finance reading list
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A parent with a son in grade 10 looks at the cost of university and comes up with a figure of about $24,000 per year for students living in residence. I wonder if there are any good universities in the city where they live.
Where there’s a way, there’s a will
A review of online will kits for Canadians. A very good place to start for the many people who have no will, but should. Do you have kids? Accumulated assets over the years? Then you need a will to spell out your wishes after you die. Now for a financial planner’s take on the mistakes people commonly make in estate planning, which include not having an up-to-date and accessible will.
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A smart take on the debate about whether index investing – buying an ETF tracking the Canadian market, for example – is better than holding a portfolio of dividend stocks. I like the emphasis on the emotional side of investing, and the comfort investors get from those quarterly cash dividend payouts.
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Some thoughts on whether now is a good time to buy stocks. “I don’t think too many young people are going to regret buying stocks right now when they look back in 15-20 years,” an investing blogger and money manager says.
Today’s financial tool
MoneyGenius has done some heavy lifting in providing data to help you compare accounts at the big banks, as well as a group of alternative banks. Time to compare your current accounts to see how they compare.
The Money-Free Zone
With a starting salary of $85,000, this 23-year-old software developer feels like she should start “adulting.” Instead, she’s still living like a student. The good news? She’s focused on saving – and investing. This is our latest paycheque project, a non-judgmental look at how young adults in Canada are spending their monthly income. We are looking for milllenials and Gen Z’s to tell us their financial story – how much they are earning and where their money goes each month. To share your personal story, please e-mail Globe PF editor Roma Luciw at email@example.com
What I’ve been writing about
- Care to lock in today’s high interest rates for the next 10 years?
- Beyond inflation and high rates: Three financial threats facing young adults, homeowners and retirees
- No, you’re not getting ripped off by the banks on GIC rates
More Rob Carrick and money coverage
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