Gap between Canada's middle class, wealthy 'starting to run away': report
A Canadian think-tank says the gap between the country's richest citizens and the middle class is starting to "run away," with wealthy 20-somethings now estimated to have a "half-a-million dollar head start" over their middle-class peers.
The report was released by the left-leaning Canadian Centre for Policy Alternatives earlier this week. It analyzed data from Statistics Canada's Survey of Financial Security, collected from 1999 to 2012.
Author David Macdonald, senior economist for the CCPA, said the most startling revelation is how conditions have improved for the wealthiest Canadians over that time period.
"The top 10 per cent, they've seen dramatic wealth gains since 1999 … they’ve seen a doubling of their wealth. In most cases, that means they're worth more than $1 million today than they would have been a decade ago," Macdonald told CTV News Channel on Saturday.
The report calls this growth "breathtaking," and outlines how affluent families with top earners in their 60s in 1999 held, on average, $1.8 million in wealth. Today, the same type of family has an average of $3.4 million in total assets.
According to the report, the affluent have seen substantial jumps in their wealth across several age brackets.
But in the case of the middle class, Macdonald says the gains been "much more modest" overall. For instance, he said 30-year-olds are "worse off" today than they were in 1999.
Fifteen years ago, affluent families, where the top income producers were in their 30s, held $740,000 in assets, which grew to $980,000 in 2012. In contrast, the average middle-class family from the same age bracket in 1999 held $68,000 in assets, which dropped to $63,000 by 2012.
"The gap is growing (and) it is much more extreme when broken down by age. I think what this says is the wealth gap is starting to run away from us in Canada," said Macdonald.
Overall, the report says the increase in the wealth gap between 1999 and 2012 can be attributed to strong returns for the richest Canadians in stock and real estate markets.
"Interestingly, it is not inheritance … they've seen big growth of those assets, big boosts in real-estate prices and that’s gone primarily to the top end," said Macdonald.
Macdonald says this "wealth advantage" begins early on, as young affluent Canadians in their 20s have received a distinct lift from their families.
According to the report, families with top earners in their 20s already have collected $540,000 in assets, or about $500,000 more than their middle-class peers have managed to save over a lifetime. At the same time, families in the middle class are worth about $8,000 in their 20s.
Macdonald says these "million-dollar babies" likely benefited from parental help, either financially or in terms of opportunity and leverage.
In particular, the report points to increases for the wealthy in three key financial assets: principal residence, secondary real estate and family business.
Non-financial help may come in the form of backing loans or spinning off family businesses.
"That's an important way by which families can pass on wealth, through supporting their children in terms of getting loans earlier in life to buy property and also set them up with portions of the family business," said Macdonald.
Despite the fact Canadians currently in their 20s are the most-educated generation in the country's history, the report says middle-class youth are "unlikely" to overcome the "half-a-million-dollar head start" possessed by their wealthy peers.
"The tremendous head start for Canada's wealthiest families in their 20s, prior to any substantial experience in the working world, provides what is essentially an entirely different life for the wealthy in Canada," says the report.