The great generational divide: Why young people don’t have it as bad as they think$1:
Generation Y is understandably frustrated these days. University tuition has been rising much faster than inflation, putting university out of reach for some and leaving many others deep in debt.
For those who do get into university and graduate, good jobs are hard to find given the high unemployment (and underemployment) rate. For the lucky ones who overcome the first two hurdles, house prices are out of reach in some parts of the country. It seems then that young people face a much harsher economic environment than did their parents or grandparents.
It is easy to be resentful of seniors who apparently didn’t have trouble affording university, found good jobs on graduation and then made a killing on their homes by buying in an era when prices were low. To top it all, they then retired well for the most part. The poverty rate in Canada, using the Low Income Cut-Off (LICO) as a proxy, is just 5.2% for those age 65 and over versus 10.5% for the age group 18 to 64. If all this isn’t good fortune enough, the impression is that seniors also receive more in pension and healthcare benefits than they paid for.
The question is whether this general perception holds up to closer scrutiny. We will start with university tuition. Today’s students are indeed paying a higher proportion of the cost of attending university.
A study by TD Economics shows that tuition fees accounted for 36% of university revenue in 2005 versus only 13% in 1980. Government funding has become less generous because spending is being crowded out by other priorities, in particular healthcare spending. As a country, we are allocating over one-third of our total healthcare spending on Canadians age 75 and over, even though that group represents only one sixteenth of our population.
The average per capita government expenditure on education is $12,000 while the average amount spent on health care for those age 85 or over is $23,000 (in 2009 dollars). Did society make a conscious decision that we should be investing more in our very elderly than we do in our young?
Next, consider the employment issue. At 14.2% in 2011, the national unemployment rate for people age 15 to 24 certainly is a problem, but not one you can blame on seniors. In fact, they should be feeling some empathy. The pain of unemployment is not new. In 1960, the unemployment rate for males age 15-24 was also about 14% and the corresponding rate in 1975 was even higher, edging close to 15%. The good news is that most people who struggled to find jobs back then eventually succeeded and went on to amass nest eggs that make them the envy of today’s younger generation.
This may be cold comfort for those who are still job-hunting but better times are ahead. With the odd blip for recessions, unemployment rates have been falling steadily since the 1990s and will keep on falling in the years to come as the Baby Boomers retire in large numbers. Comparing future labour force needs versus expected population growth, the national unemployment rate could fall to 5% within a decade.
The third piece in the puzzle is house prices. Exploring the more distant past is a challenge because good statistics before 1987 are hard to find. RBC’s housing affordability index shows that the average cost of home ownership in this country is about the same today as it was 25 years ago. While home prices were substantially lower in 1980 than in 1987, housing affordability was probably about the same given the very high interest rates in the early 1980s. So if a house is out of reach for the average young person today, that has probably been true for much of the last 30 years. Those who were lucky enough to buy a house before 1980 no doubt paid much less in real terms.
Overall, Generation Y faces a greater challenge in buying a house than did most people who are now in their sixties and seventies but no more of a challenge than people in their fifties experienced.
The final question is whether young taxpayers are unfairly paying for the pensions of current retirees.
The Old Age Security (OAS) pension and the Guaranteed Income Supplement (GIS) will be payable from age 67 starting in 2029, versus the current age 65. Starting OAS and GIS at 65 got too expensive and it will be younger Canadians who are affected. On the other hand, future retirees will live longer and can expect to receive OAS and GIS for as long as current retirees, even though payments will start later. In any event, OAS and GIS are minor items compared with the cost of health care.
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If there is any significant intergenerational inequity in the pension sphere, it is with respect to the Canada Pension Plan. From 1966 to 1987, combined employee/employer contributions to the CPP were just 3.6% of the earnings base. Then the rate started ramping up and reached the current level of 9.9% of pay in 2003. This is indeed expensive since the real cost of the CPP benefits that are being earned for future service is closer to 6% of pay. The difference is the extra amount we need to pay to stabilize the funding of the program and to make up for the under-contributions of the past. Existing retirees did indeed get a free (or at least a subsidized) ride, especially those who retired before 2000.
In summary, today’s youth would be justified in thinking that they are worse off in some respects.
It does cost more for a university education or to buy a house. On the other hand, it has always been hard to get a decent job in the midst of a recession or a period of slow growth. Moreover, we shouldn’t take for granted that the modern world is better in so many respects.
Half a century ago, when today’s elderly were in their teens or twenties, there were no iPods, cellphones, dishwashers, dryers, microwave ovens, CD or DVD players, Internet or home computers. There were cars but they had only modest horsepower and air conditioning and FM radio were options that most people did without. Travel abroad was almost unheard of. Medicine was cheaper but also far less effective and access to a specialist was limited. Children wore hand me downs and discovered two or more cavities with every visit to the dentist. There was no cable TV and the antennas of the day might pick up half a dozen channels, usually with poor reception. Restaurant visits were infrequent. If we really yearned for the good old days, and settled for a genuine 1962 lifestyle, we would find it surprisingly affordable. The thing is, nobody today would opt for that lifestyle.
While young Canadians have many reasons to feel frustrated right now, their time will come. They might even be happy eventually that we maintained the pension programs and that expensive health care system. It is a safe bet that the youth of today will be the envy of the graduating class of 2060.
http://business.financialpost.com/2012/ ... hey-think/So, in two out of three ways, kids today are worse off, and the other is simply the equivalent of what Boomers had to deal with in their youth.
To me, that means the title is WAY off - it should be something like "Gen Y is correct - life is tougher for them than it was for the Boomers"
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