Millennials have less debt than any other generation, but more are filing for bankruptcy than ever before.
A study by personal insolvency firm Hoyes, Michalos & Associates Inc., found that the number of Ontario bankruptcies filed by millennials (aged 22 to 37) increased from 35 per cent in 2017 to 38 per cent in 2018.
In comparison, bankruptcy among Baby Boomers fell from 24 to 21 per cent in that one-year period, while Gen X insolvencies saw relatively no change from 38.3 to 38.7 per cent.
While the latter generation has more debt than millennials, the study noted that Gen X’s insolvency rate is on the decline, whereas the millennial trend is on the rise. From 2011 to 2018, the millennial bankruptcy rate went from 14 to 37 per cent, which is a growth of 162 per cent in seven years.
So why are more millennials filing for bankruptcy? Two words: student loans.
“Millennials are graduating with much more student debt than previous generations and this is certainly a contributing factor,” Doug Hoyes, licensed insolvency trustee and Hoyes, Michalos co-founder, said in a press release. “As more millennials pass the seven-year limitation for student debt forgiveness in a bankruptcy or consumer proposal, student debt insolvencies rise.”
According to the firm's study, 31 per cent of millennial debtors had student debt in 2018. The balance of unpaid loans that year averaged $14,311.
Although student loans do not solely affect millennials, it’s become one of the hardest struggles for the younger generation. Tuition fees are continually on the rise, costing a student an average of $6,500 per year to attend a Canadian university. But high-cost programs, such as engineering or dentistry, can cost even more, ranging between $8,000 and $22,000 per year— and that’s before books and supplies!
In addition to student loans, payday loans and credit card debt also contribute to the bankruptcy rate among millennials, the study noted. As a result, financially struggling millennials owed an average of $35,733 in unsecured debt when filing for bankruptcy in 2018.
“What’s really driving all this is a lack of stable, secure income sufficient to pay down debt,” Ted Michalos, the other co-founder of Hoyes, Michalos, said in a press release. “The average millennial we see has just $243 in income available after paying their living costs to pay an estimated $1,033 in interest costs alone.”
Bridget Casey, founder of financial literacy service Money After Graduation, agrees that the young generation is stuck in a precarious situation.
“Millennials are caught in the perfect storm of big student loan debts, high housing costs and low wages,” she told Vice. “This combination makes it extremely difficult to save so they fall behind in a big way, very fast and early on.”
Unfortunately, everything adds up. And with the high cost of living today, millennials can’t even leverage assets, such as a house or car, to pay off their debts. In 2018, less than three per cent of millennial debtors owned a home at the time of bankruptcy, the study found.
“Even those millennials who have entered the housing market likely bought at higher prices, which has also limited their ability to refinance,” Hoyes said. “When they file insolvency, the average equity in their home in 2018 was only seven per cent. Really, they have no room to maneuver.”
Household debt is a big issue among Canadians. A poll from December found that nearly half of respondents were just $200 away from being able to pay their bills. Additionally, a survey from earlier this month found one in five Canadians will liquidate assets to pay off their debts in 2019.