Young Canadian households have built wealth faster than any other age group since 2020, but new data points to early signs of erosion as their income growth falls behind.

According to a report from RBC Economics, “households under age 35 nearly doubled their net wealth over the last four years, yet they’ve simultaneously experienced the slowest income growth of any age group.”

Since early 2020, “young households experienced the slowest disposable income growth of any age group… rising just 18%,” the report by economist Rachel Battaglia says. That leaves under-35s as “the only group where income growth has failed to keep pace with inflation.”

The report notes that a surge in wealth “largely came from an increase in financial assets, including cash deposits and sizable growth in the value of their properties.”

Pandemic-era supports played a key role, allowing young people to build financial reserves, the report says, adding that “stock market appreciation and generational wealth transfers also likely contributed to these gains.”

Reduced debt loads

Younger Canadians also benefitted from shrinking liabilities with lower average mortgage debt, in part because those who bought or refinanced during 2020 and 2021 “benefitted from low borrowing costs, which enabled faster debt repayment.” But young Canadians are also not buying homes as much as previously, another factor in the reduced debt.

The labour market remains a challenge. “Sluggish employment compensation growth—the primary source of income for households under 35—is the primary driver for weak disposable income growth,” the report explains.

Younger workers also face greater volatility: “Labour market volatility impacts younger workers disproportionately,” and “young Canadians have also taken longer to find work.” As a result, “the employment rate for those under-35 is set to drop 3 percentage points this year relative to 2020.”

Those pressures raise concerns about whether pandemic-era wealth gains can be sustained. The report warns that “the disconnect between income and wealth for young Canadians raises important questions about their financial security as housing and equity markets normalize.” It also notes that “early signs of erosion are already emerging with wealth accumulation slowing in recent quarters for households under 35 more than any other age group.”

Still, the outlook is not entirely bleak. The report concludes that “our forecast for a gradually improving labour market suggests further erosion isn’t a foregone conclusion.”