Debt, millennials, and buying homes

Millennial Home Buying Mishaps

How much do you believe a down payment on a starter home is? The answer may or may not surprise you, but what will certainly surprise you is how much millennials are underestimating the cost of a down payment on a house in Canada. In a recent survey by Point2homes, it was reported that a majority of millennials vastly underestimate the cost of housing in urban centres.

chart describing the assumed versus actual minimum down payments need to purchase a home in major Canadian cities

80% millennials that were surveyed in this study believe that a down payment on a home in Vancouver is under $100,000.

Does that seem like a reasonable assumption? Maybe the real issue is financial education?

In reality, a down payment on a home in Vancouver is over $300,000! This statistic did not solely apply to Vancouver as millennials in most major Canadian cities had similar levels of detachment between assumed and real housing costs. Though this statistic highlights that millennials are not educated on financing home purchasing, it does not showcase where millennials’ finances are focused.

Millennials & Debt

Question: What kinds of debt do millennials have?

Answer: Too much and they definitely do not want more.

Millennials are both much more indebted, and as a result are, arguably more debt averse than their older generational counterparts. Canadian students (largely millennials) are indebted 28 billion dollars in total to both provincial and federal levels of government (source). The interest revenue collected by governments in Canada has risen from 635$ million in the 2015-2016 academic year to 862.6$ million in the 2017-2018 academic year, meaning an increase of 36% in a 2 year period. This issue has reached a level so high that millennials are questioning whether post secondary education is even worth the cost to pursue it. A growing movement in Canada is even lobbying for forgiveness on future interest payments on government student loan debt.

In response to growing student debt among millennials there is a growing trend of opting out of credit cards as they believe the risk of debt to be too burdensome. This trend has reached such an extent that only 33% carry a credit card.

The debt wariness of millennials makes even more sense when an analysis of all generations showcases that 41% of millennials have student loan debt compared to 26% for generation X, 13% for baby boomers, and 3% for the silent generation (2015, pew research).

How Big Of A Problem Is Debt Among All Canadians?

Millennials are far from the only culprits when investigating debt levels throughout the nation. According to The Bank of Canada, Canadians household debt is roughly 170% of disposable income, meaning that Canadians have nearly twice the level of debt compared to what they are sustainably able to spend (source). The same report also compared Canada to other indebted nations with mature economies. A major cause of the problem is that housing costs have increased rapidly while incomes have remained steady. An interesting factor that nations with high debt to disposable income rates have in common are very developed mortgage markets with average amortizations of over 25 years.

What Should I Do About My Debt?

The first question that should be asked when looking to deal with debt is:

What type(s) debt do you have?

The most expensive form of debt by far is credit card debt with interest rates being around 20%, versus current fixed rate student debts of slightly below 9%, thus credit card debt should be paid down before student loans, and student loans before even cheaper debt. It is extremely important to be conscious of the most expensive interest rate and pay the principal down as soon as possible.

The second question to ask yourself is:

How lean am I willing to live my lifestyle in order to pay down my debt?

Living within your means can be an extremely complicated idea.

In a world fuelled by debt and an ever-increasing presence of luxury promotion through social media, what does the term even mean?

Living within your means, in our eyes, refers to the question of what are you willing to give up right now, to accomplish your goals in the future.

What Does This All Mean For My Dreams of Owning a Home?

So what are you’re telling me to do? Do you want me to go to university? Do you want me to buy a home? Do you want me to pay off my debt?

These are all excellent questions, and we can’t tell you the answers, you’ll have to find them yourself.

What we can tell you is that living within your means is a study of patience and forward thinking. Your goals should reflect the lifestyle you want to live 5, 10, 15, 30, or even 50 years from now, while not forgoing the happiness you want in your life today.

Student loans require discipline to pay down, just as studying for exams does. Living the lifestyle necessary to accomplish your goals is difficult, but the only reason we pursue difficult goals is because they are in fact worth pursuing. If your goal is to buy a home and you have to live a more lean life to accomplish it, the main question you need to ask yourself is;

What are you willing to do now to secure the future you desire?

Ready to go?