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Why are Seniors in so Much Debt?

20 September 2013

Just a few weeks ago, we talked about the new Equifax report that showed that retirees were the group to be the most in debt out of all Canadians. Now, some leaders in the industry are speaking out about just why that is.

Craig Alexander, chief economist with TD Bank, says that one reason could be that, just like everyone else, seniors are enjoying the low interest rate environment this country has been in for the past several years. With home equity lines of credit sitting at just 3 per cent, and other unsecured debt to be found at 4 or 5 per cent for this group, it doesn’t cost nearly as much to borrow as it did even a decade ago.

“It’s just so cheap to borrow,” he says. “They could be going into real estate, renovating, or maybe there are just consumer products they want.”

And a recent TD Bank report showed that to be true. In 2012, households with those aged 65 and older increased their debt load by 15 per cent.

“It’s counter-intuitive the way we normally think about the life cycle,” says Mr. Alexander. “The way we normally think about it is that when you are younger you live beyond your means and take on debt and then later in life your income goes up, you pay down debt and start saving for retirement.”

But the problem is that even though seniors might enter retirement being able to afford the bills they’re taking on, there’s very little wiggle room for anything else such as emergencies or unexpected expenses. And some aren’t even able to afford those bills.

Henry Francheville, a senior manager with Grant Thornton Poirier Ltd. in Moncton, New Brunswick, just spoke at an event put on by the Canadian Association of Insolvency and Restructuring Professionals, and he touched on this topic there. His main point was that, for households that have someone over the age of 75, they have only $20,000 or less in income.

“They’re just not rich,” he says. “If those people have debt, and that’s the new reality, especially credit card debt, they are not going to be able to deal with it.”

And he says, it’s not always debt or big purchases that are putting these seniors in debt. It’s the regular, everyday expenses that we all have. But seniors just can’t afford them.

“It’s not smartphones,” he says. “It’s groceries, it’s power bills.”

It also doesn’t help that many of today’s seniors didn’t have enough money deducted from the company pension plan in their former jobs. So should they fall behind on their taxes, or owe Canada Revenue money for any other reason, those already-depleted CPP and OAS funds can be garnished in order to make up the funds.

And Andy Fisher, a trustee with A. Farber & Partners Inc., says that bankruptcy could actually be the solution for these seniors, as it would stop the garnishing of OAS and CPP. But, he also says that even though it might be the best solution for them, many seniors simply don’t want to claim bankruptcy for fear of the stigma attached to it.

“Bankruptcy is a bad word for the older generation even though it’s probably in their best interest,” says Mr. Fisher.

But perhaps it’s Scott Hannah, executive director of the Credit Counselling Society in Vancouver, that sums up best the reason why seniors are in so much trouble with the amount of money they have.

“I think the biggest change we see is consumers are going into retirement with debt. Previous generations just never went into retirement with debt,” he says.

And if consumer spending today is any indication of what it will be in the future, that’s something that’s not likely to change any time soon.

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