Every two years here at Hoyes Michalos we analyze the profile of everyone who files a consumer proposal or personal bankruptcy with us, to put a "face" on the average person we are helping deal with debts. We call this typical person "Joe Debtor", and this year, despite warnings from the Bank of Canada and other prominent financial advisors, we observed the continuation of two disturbing trends: Joe Debtor is getting older, and he's carrying more debt.
Our entire report is available on our Joe Debtor section, and the report shows that the average person we help is a 43 year old male, and he is getting older. In 2009 "Joe Debtor" was 41 years old; today he is over 43 years old.
Of course we don't just help men; 57% of our debtors are male, 43% are female. We also help people of all ages. 30% of our debtors are between 30 and 39 years of age, and a further 30% are between 40 and 49 years of age. 18% are between 50 and 59 years of age, up from 16% two years ago.
Of particular concern, the percentage of older Canadians (aged 50 and older) rose to 28% of all insolvent debtors, compared to only 24% in our study from 2009 to 2010.
Aging Debtors Taking on More Debt
Here's the scary part: The typical "Pre-Retirement" debtor aged 50 to 59 is carrying the highest unsecured debt of all age groups: $84,199, an astounding increase of 14% from two years earlier, and 38% higher than the average insolvent debtor.
Why do Pre-Retirement debtors have the highest level of debt? There are a number of reasons:
Although the majority of debtors in the 50 to 59 age group are working, their income is lower than the 40 to 49 age group. The average Pre-Retirement debtor has net income of $2,366 per month, as compared to the $2,500 per month earned by the 40 to 49 year old debtor.
Higher Debt to Income Ratio
As income falls and debts increase, it becomes increasingly difficult to service your debts. This drop in income has contributed to pre-retirement insolvent debtors having an unsecured debt-to-income ratio of 297%, the highest among all age groups. Having accumulated debts over a period of time, they can no longer sustain their payments after an unplanned drop in income.
Supporting Children and Parents
It is not unusual for a 50 to 59 year old person to be supporting both their children and their parents. Thirty percent of Pre-Retirement debtors still have a dependent at home. This may be a dependent parent, an adult child returning home or still in school, or even grandchild. Others are "helping out" children not living at home.
Another issue facing Pre-Retirement debtors is the increased likelihood that they will face an unexpected illness or disability. Pre-Retirement debtors are the most likely to list health reasons as a cause of their insolvency either due to increased medical expenses (for themselves or a family member) or as a result of a drop in income due to early retirement, disability or time off work.
We ask all debtors for the causes of their financial problems, and Pre-Retirement workers are more likely to list job related or health reasons as the primary cause of their bankruptcy. Here are some examples:
I was unable to find employment since being laid off.
I have been off work for several years due to illness.
One child in post secondary school. Other child has a disability who we have to care for.
Dealing with debt is a challenge at any age, but it is particularly challenging when you are faced with reduced income, costs to support a family, and medical issues.
Pre-Retirement Debtors Are High Risk Debtors
Pre-Retirement debtors are "squeezed at all ends." They are not reducing their debt as they approach retirement, and in fact their debt level is increasing. Their expenses remain high as they support children and parents and deal with health issues, but they have lower income than younger Canadians. As a result they use credit to make ends meet, adding to their already high debt load.
They cannot repay their debts and the "house of cards" collapses, leaving them with no alternative but to file a consumer proposal or personal bankruptcy.
At Hoyes Michalos our advice to older debtors is straight-forward: it is unlikely that your debt problems will go away on their own, so we suggest you review your options and deal with your debts now, so that you can move into your retirement years debt free.