Canada’s income gap widens between rich, middle class
Study reveals affluent youth have $500,000 ‘head start’
Zac and Atousa Feilchenfeld are 29year-old professionals, with two young children, two cars, and a house north of the Danforth worth more than $400,000. They have it all, at first glance. But what’s their net worth? Next to nothing.
“It comes around zero dollars, based on what we owe,” said Zac.
Young, middle-class families such as the Feilchenfelds typically have a small net worth under $10,000, but a new study finds the most affluent Canadian families in their 20s have an average net worth of over $500,000 — more than most middleclass families manage to save over decades.
“It’s difficult to see how you’d be able to overcome a half-a-million head start in your 20s,” said David Macdonald, a senior economist at the Canadian Centre for Policy Alternatives who authored the report.
Macdonald’s study explores Statistics Canada data from 1999 to 2012 and suggests the wealth advantage for the top 10 per cent, Canada’s richest families, starts at a young age.
The 2012 data also shows the top tier in their 60s had over $3 million in wealth, seven times more than the middle-class families in that age group.
Macdonald said this wealth gap has grown rapidly since 1999.
“It’s not unknown that as people get older, they have more wealth . . . but I think what’s new here — this examination by decade and age — shows a lot more inequality,” he said.
Wealthy Canadian families of all ages are now worth twice as much as their counterparts were in 1999, the report suggests. People in their 30s were the exception — their net worth grew by 33 per cent — but were still millionaires by 2012.
“I thought that inheritance would play a big role in this,” Macdonald said.
“But in the lower age spectrum, the 20s and 30s, it’s not important at all.”
Instead, Macdonald found the doubling of net worth was tied to high returns on assets since 1999, along with higher income levels and stronger pay raises.
He said it may be time to re-examine measures like the 50 per cent lower tax rates on capital gains to potentially help slow the growing wealth gap.
To gain such a high net worth at a young age, Macdonald said, people typically start with real estate — which provides an advantage for the more affluent, hoping to purchase property in their early 20s with parental help.
“If your parents aren’t themselves wealthy, they can’t back that mortgage for you,” he said.
Miles Corak, an economist with the University of Ottawa, said this new CCPA study highlights how not all young families are “starting out at the same starting line.”
“The report gives a fresh perspective on the discussion of the state of the middle class, emphasizing the importance of growing income inequality but noting that the plight and concerns of the middle class extend beyond that,” Corak said.
“It has to do wealth and perspectives on the future: with a need for security, but also for concern over the prospects for their children, and that they will be treated fairly.”
As for the Feilchenfelds, they’re hoping for financial growth in their future, despite starting out with a close-to-zero net worth.
Zac, a physician in his last year of residency, and Atousa, an elementary teacher on her second maternity leave in three years, know their income will go up, and the couple hopes to hit a $500,000 net worth within five years. But they know it won’t be easy. While an inheritance from a relative helped them with a 5-per-cent down payment on their Danforth home, the house is “almost entirely mortgaged,” Zac said.
Between mortgage payments, car payments and student debt, there’s a lot for the young couple to pay off. Once Atousa returns to work, they’re bracing for the sting of daycare costs as well — and eventually another mat leave, since the pair wants more kids down the road.
“We’re sort of asset poor, but a good amount of income,” Zac said.
“It’s not unknown that as people get older, they have more wealth . . . but I think . . . this examination by decade and age shows a lot more inequality.” DAVID MACDONALD ECONOMIST, REPORT’S AUTHOR