55+ Age Group More Likely to Face Bankruptcy

New information shows the group at highest risk of insolvency in Canada is not younger Canadians, but those in the 55 and older group. This information stands in stark contrast to the expectation that older Canadians, as a group, have built enough wealth over their lifetimes to shield themselves from financial distress in their later years.

While insolvencies (bankruptcies and consumer proposals) for all Canadians have been rising rapidly over the last two decades, the rate has varied by age group. When the data is sorted by age, it is clear the biggest climb has been for those in the 55 and over age group.

In 1990, the rate of insolvencies for the over 55 age group was about one-eighth that of the 35-54 age group. But by 1997, insolvencies among people age 55 and over had grown to fully half the rate of those aged 35-54. This data tells a different story than the evidence that households composed of people over 55 have seen the greatest wealth gains and the largest reductions in poverty over the past two decades.

Unexpected findings prompt research study

The surprising rise in insolvencies for older Canadians triggered a study funded by the federal Office of the Superintendant of Bankruptcy to uncover the causes of financial difficulty for this group.

The researchers found the main causes of bankruptcies for those 55 and over were an overextension of credit, followed by medical reasons and insufficient income. Overextension of credit is the number one cause, responsible for nearly 30% of the bankruptcies in the survey. 

The effects of overextension of credit were further magnified for those aged 75 and older, as nearly 40% from this group said it was the main reason for their insolvency.

Changing patterns of credit use

This new data on older adults, credit, and bankruptcy correlates with Spend On Life’s earlier report that the ways in which Canadians use credit, especially credit cards, has changed dramatically over the past decade or so. Although ready access to plentiful credit is a relatively new phenomenon and would not have been in place when older Canadians were starting out their adult lives, it would appear that today’s older adults are not immune from the "buy now, pay later" siren call.

Effect on credit scores

Racking up more credit card debt than you can pay back is a surefire way to lower your credit score.  Lower credit scores mean lenders are less willing to offer you new loans or credit on good terms. With a diminished credit score and credit card debt piled sky-high, the only option for many becomes insolvency. Sadly, insolvency further weakens your credit score, continuing the cycle of bad credit for an additional six to ten years.

This situation is less difficult to recover from in your prime earning years than it is for older Canadians who are retired or can’t find work. The best solution, as suggested by the federal study, may be to support today’s adults in financial planning at a younger age so they don’t encounter the same money problems in their future. But there is no clear or easy solution for those older households suffering financial distress now.