Millennials entered adulthood at a time of historically low interest rates, soaring house prices, stiff tuition cost increases and a job market where temporary work without benefits or pensions is common.
With all this disruption, it’s difficult to know what a normal debt load, a normal mortgage balance and a normal amount of savings is if you’re a young adult. Do most millennials owe money? If so, how much? Is it common to have no savings in this age group?
A poll this week on debt and savings by the Angus Reid Institute in partnership with The Globe and Mail offers some answers. A total of 1,500 people were surveyed in the fall, 478 of them aged 18 to 37 and thus classifiable as millennials.
The poll results show that it’s not unusual for today’s young adults to have no savings. Roughly 60 per cent of millennials aged 18 to 37 described the amount they have saved as not much or none. What’s normal? Somewhere between zero and $25,000. A little more than 40 per cent of people from 18 to 37 were in that range.
Debt is certainly normal for millennials. Only 20 per cent in the 26-37 bracket were debt-free, compared with 31 per cent aged 18 to 25. These debt numbers include credit card balances and student and other loans, but not mortgages.
A normal millennial debt load seems to be $25,000 or less – that’s what roughly 45 per cent of millennials aged 18 to 37 reported. But 9 per cent of people aged 26 to 37 reported owing $50,000 to $100,000, and 4 per cent owed between $100,000 and $150,000.
Rising house prices in some cities have made it increasingly tough for millennials to get into the real estate market, but the poll results show a surprisingly strong number of owners. In the 26-37 bracket, 42 per cent owned their current residence. Forty-four per cent of millennial homeowners in that age group had financial help from their parents or other family in buying a home. Clearly, getting help with a down payment is very normal.
A typical level of home equity is tough to pin down in the millennial demographic. Forty per cent of those aged 26 to 37 said they have less than $250,000 in equity in their homes, while 39 per cent said they were between $250,000 and $500,000. Either these millennials got help with down payments from parents or they bought well before the recent peak in house prices in some cities.
Just more than half of 26- to 37-year-old home owners reported mortgage debt of less than $250,000. Another 25 per cent reported a mortgage balance between $250,000 and $500,000, and 14 per cent were between $500,000 and $750,000. A fortunate 9 per cent did not have a mortgage.
The national average resale house price was $472,280 at the end of last year, while Toronto and Vancouver came in at $764,200 and $1-million, respectively. Let’s say a normal level of mortgage debt in cities with below-average prices is $250,000 or less, while higher-than-average would be $500,000. In Toronto and Vancouver, up to $750,000 has to be considered normal.
A normal retirement for millennials will be primarily funded by personal savings – that’s what 56 per cent of people aged 26 to 37 and 68 per cent of 18- to 25-year-olds think. Just 30 per cent in both millennial cohorts think a work pension will mainly cover their living costs in retirement, while one-third believe a government pension will be their go-to retirement vehicle.
Inheritances will not be normal. Just 11 per cent of those aged 26 to 37 and 8 per cent of people aged 18 to 25 thought money from their parents would pay their way in retirement.
Millennials have been slammed as the failure-to-launch generation, but that’s not the story told by the Angus Reid numbers. Over all, they suggest that millennials most likely have debt, but not a crushing amount. Many have at least a modest start on saving. In a difficult housing market, close to half of 26- to 37-year-olds own a home.
Whether they’re normal or not, all millennials have one overarching advantage in achieving financial success – time. A lot can be fixed in the 30 or 40 years until millennials retire.
Stay informed about your money. We have a newsletter from personal finance columnist Rob Carrick. Sign up today.
Rob Carrick