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34–44 Age Group Most Indebted

debt (3)If you fall between the ages of 34 and 44, you’re most likely grappling with the highest debt load — relative to your net worth — that you’ll see in your lifetime.

That’s according to a newly released report by the Royal Bank of Canada. It found that in 2012 the 34–44 age group had a ratio of household liabilities to net worth that was more than two times the average of all ages, with a growth rate that outpaced all other age groups.

The primary driving force behind this increase? Mortgages.

“The comparatively large increase in leverage appears to be related to the fact that this age cohort made up much of the population of first-time home buyers between 1999 and 2012; a period that also coincided with a historically high rate of house price appreciation,” said report author Paul Ferley, RBC’s Assistant Chief Economist.

“…younger age cohorts have also become significantly more leveraged relative to their 1999 equivalents compared to older age groups.”

RBC cites other factors contributing to this age group’s debt accumulation, including:

  • Significantly lower interest rates, which reduces carrying costs of bigger debt loads
  • A shift in preference for “current consumption at the expense of future consumption, resulting in less saving”
  • Higher incomes, or an expectation of higher incomes in the future (how much of those expectations is wishful thinking is hard to say)
  • Growing comfort with the idea of carrying a higher debt level than in the past

“It is also possible, however, that the increased cost of purchasing a home and servicing a mortgage, particularly for first-time buyers, has left less funds available for other purchases, requiring greater non-mortgage debt,” Ferley wrote.

Outside of mortgage debt, the 34–44 age group saw a rise in leverage attributed to lines of credit as well as auto loans. Student loans were largely unchanged and credit card debt declined slightly.

On the flip side, real estate was also responsible for substantially improved household balance sheets. “(The) data shows a sizeable 66% improvement in real household net worth from 1999 to 2012, or 4% per annum,” the report states.

That’s hardly surprising, of course, given the run-up in real estate prices in recent years. But prices can also move the other way, while debt stays static. That can turn the tables pretty quickly on someone’s net worth, a point that shouldn’t be understated.

Sidebar: The RBC report is based on an updated Survey of Financial Security that Statistics Canada undertook in 2012.

Steve Huebl, CMT (email)