Housing costs, not avocado toast, to blame for millennials’ retirement struggles

Too much avocado toast isn’t the reason younger Canadians have a hard time getting a start on their retirement savings.

Canadian millennials are “literally working and studying more to have less” than their parents and grandparents, according to Paul Kershaw, associate professor in the School of Population and Public Health at the University of British Columbia, speaking on at Franklin Templeton Investments Corp. retirement event at the Shangri-La hotel in Toronto on Wednesday.

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As such, it’s no wonder younger Canadians can’t find the time and money to devote to using the tools the government and their employers have set up to help them save for retirement, said Kershaw. The desire to create a happy home life squeezes them on the time side, while higher costs for childcare, student debt and housing put pressure on their wallets. Whenever there’s a trade-off between saving for retirement and filling one of those more immediate needs, Kershaw noted it’s clear people will go for the issue that’s in front of them right now.

Currently, skyrocketing home prices are the biggest reason the economic landscape is a far more treacherous one for young professionals seeking to achieve financial stability. “What’s been good for my mom’s home ownership has been bad for her grandchildren’s generation,” said Kershaw.

To put the situation in numerical terms, in 1976, it took an average of five years for a working Canadian to save enough for a 20 per cent down payment on a home. Today, that average has gone up to 13 years, countrywide, with urban centres like the greater Toronto area and metropolitan Vancouver going up to 20 and 27 years, respectively.

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There’s no point in forcing Canadians to save unless policy changes are also made to ease the financial burdens they face in other areas of life, said Kershaw. “What fundamentally drives the standard of living is how much can you sell your labour for in the marketplace and how far can you stretch those earnings in the marketplace to cover your major cost of living,” he said. “Those things are deteriorating dramatically in this country for a younger demographic, which then makes it fundamentally more challenging to imagine having the dollars to set aside in your own retirement plan.”

Since housing is the biggest piece of that monetary pie, policy-makers need to take action to shift Canada’s understanding of the value of its real estate, said Kershaw. The concept that a residential piece of property is a home first and an asset second is key to that perspective.

In Ontario and British Columbia, especially, it’s temping to view the value that the real estate sector adds as a positive factor in Canada’s economic health, he said. However, those growth numbers come with the caveat that the real estate market doesn’t actually provide jobs or corresponding earnings.

Kershaw argued government spending, as it currently stands, gives a disproportionate advantage to Canadians aged 65 and older, with an average allocation of $33,000 per person, as opposed to $12,000 for those under 45. In addition to incurring far higher medical costs for the government, older Canadians benefit from significant tax shelters. That made sense when there was a much larger number of seniors living in poverty, but older Canadians are now much better off, said Kershaw.

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“We need our governments to meet us halfway in adaptation,” he said, noting policy-makers need to rethink the distribution of government funds in order to help younger Canadians boost their financial prospects so that starting to save for retirement is even on on their radar, said Kershaw.

Policy solutions, he suggested, include encouraging further density, reducing the factors that lead to empty homes or short-term rentals and planning for wealth accumulation programs that cater to renters.