Study: The evolution of wealth over the life cycle, 1977 to 2005

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The net worth accumulated by Canadians as they reached their late 30s to early 50s varied little from one generation to another.

However, the process by which individuals built their wealth differed between generations. This was because recent generations accumulated higher levels of both assets and debt than earlier ones.

This study uses survey data covering the assets and debts of Canadians to follow the accumulation of wealth by several generations as they progress through the life cycle. The term 'wealth' refers to net worth, or net assets, expressed in 2010 constant dollars.

The study followed cohorts through their life cycle, beginning with young adults aged 28 to 34 in 1977. Three subsequent cohorts of young adults were examined, beginning in 1984, 1999 and 2005, respectively.

Among young adults, median household net worth declined steadily across successive cohorts. In 1977, those aged 28 to 34 had a median household wealth of $30,100 per adult. In 1984, it was $23,700; in 1999, $20,000; and in 2005, $17,400.

The next period of the life cycle corresponds to the late 30s, which could also be compared across the 1977, 1984 and 1999 cohorts. All three cohorts achieved similar levels of net worth by that stage of the life cycle, around $50,000 per adult. However, the most recent group had 50% more assets and twice the level of debt of the 1977 cohort.

Only the 1977 and 1984 cohorts could be followed until they were in their early 50s. Both groups built nearly identical median household wealth—just under $150,000 per adult.

By 2005, the young adults in 1977 had reached the age of 56 to 62. As they neared their retirement years, they had amassed a median net worth of $213,000 per adult. At this stage of the life cycle, rising private pension assets and declining mortgage liabilities generally contributed to increases in the net worth of the typical household.

Housing market conditions varied considerably from generation to generation. In the late 1970s and early 1980s, young adults dealt with a market characterized by higher interest rates and lower housing prices. In contrast, the 1999 cohort faced higher housing prices, but lower interest rates.

Accordingly, mortgages on principal residences represented 76% of the debt of adults in their late 30s in the 1999 cohort, compared with just under 60% in the 1977 cohort.

The principal residence also represented a larger portion of total assets—55% for people in their late 30s in the 1999 cohort, compared with 46% in the 1977 cohort.