Almost half of retirees are in debt. While their total debt might be lower, older Canadians are accumulating debt at a faster rate than their children and grandchildren. The question is, why this is the first generation of seniors willing to risk their retirement by taking on so much debt late in life? In truth, seniors are facing the pressure to go into debt for three main reasons.
1. Lifestyle and Longevity
For some, debt becomes a way of funding their retirement. A small segment may be using debt to maintain a larger home rather than downsizing and travelling, but for many, debt is funding basic living expenses. A reduction in income without a healthy safety net, in terms of retirement savings or a good pension, means borrowing to pay the rent and eat. As we live longer, any savings we do have may not go far enough.
2. More Borrowing Tools
There are many more lending products directed specifically at seniors than ever before. Think of products like a reverse mortgage. Seniors can now stay in their home longer, borrowing from the equity in their home to fund the cost of staying there, going on vacations and more. And payday lenders have stepped into the seniors market in a big way. Most payday loan companies are all too happy to loan against CPP and private pension income. With a stable, but small, source of income, seniors are prime marketing opportunities for payday loan companies. Almost 10% of our clients at Hoyes, Michalos & Associates carried a payday loan and seniors owed the highest payday loan debt of all age groups. Taking out multiple loans, they owed on average $3,700 in payday loan debt at the time they filed bankruptcy.
3. Family Pressure
This last reason is most concerning. Many older Canadians are facing pressure from family to borrow money to help their children or grandchildren. With the cost of homeownership skyrocketing and the high cost of post-secondary education, younger Canadians are looking for financial help from their parents and grandparents. Many are taking out debt of their own to do so or co-signing loans for their offspring. If those same children experience financial trouble of their own later in life, a now indebted senior has to find a way to pay off this debt or file bankruptcy.
Debt and Elder Abuse
In extreme cases, the demands for money lead to elder abuse. Elder abuse can take many forms including, but not limited to: financial, physical, sexual, psychological and active neglect. It has been estimated that between 2 and 10% of all seniors are subjects of abuse. The difficulty in providing an accurate assessment as to the scope of the problem is due, in part, to the fact that many cases go unreported. Seniors themselves are often reluctant to report abuse because they fear retaliation, recriminations and the possible restriction of their future freedom to act independently.
As professional advisors, we have a duty of care to our clients. We have seen an alarming number of cases of seniors borrowing money at the demands of a family member. This should never happen and we need to be vigilant as to the warning signs in our community and be prepared to step in, even if it means reporting the abuse to the appropriate parties.
If you suspect someone may be experiencing elder abuse, have a look at these resources for help:
- Financial Consumer Agency of Canada: Financial Abuse of Seniors and Fraud
- Elder Abuse Ontario
- Toronto Police Service: Elder Abuse Guide
- Your Legal Rights – Rules About Reporting Elder Abuse
- Nice – Preventing and Intervening in Situations of Financial Abuse
We’ve seen in our practice an alarming increase in the number of seniors filing bankruptcy. Today 1 in 10 insolvencies we file involve seniors aged 60 and older. Carrying debt into retirement increases this risk, as do the factors noted above.
It’s our job to keep an eye on our aging family members and look for the signs of financial trouble. Go with them to talk with an expert. Make sure they get good advice and help them keep their debts from overshadowing their retirement.
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