Many Canadian millennials struggle under a load of debt, and apparently more and more of them are looking for relief from creditors.
One Ontario firm that provides bankruptcy and consumer proposal services says in its biennial "Joe Debtor" report that 18 to 29 year olds comprised one in seven of their insolvent clients between the start of 2015 and the end of 2016.
Hoyes, Michalos & Associates says that’s up two percentage points from previous reports, in which 12 per cent were "young millennials."
The company notes that per-capita consumer insolvency rates are at a 15-year low in Ontario, but those who file for bankruptcy or consumer proposals are already struggling financially before their debt is factored in. Young people, many living paycheque to paycheque, fit right into that box.
Young millennials in Ontario often don't have the income to cover their expenses, so they're turning to payday loans. (Photo: Getty Images)
But contrary to what some might think, home ownership isn’t the problem, at least for Hoyes, Michalos and Associates clients. Only five per cent of young millennial debtors actually owned homes. Instead, their income wasn't high enough to pay off their student loans and other debt.
Those clients made an average of $2,028 in after-tax monthly income in the most recent report, with just over $29,000 in unsecured debt. But while their debt-to-income percentage was the lowest of all the firm's clients, they also made the least amount of money. That’s despite the fact that 85 per cent of them were employed.
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You may feel like saving is impossible with that huge pile of debt sitting on your back, but unless you take care of it first, you won't be able to plan out a clear financial future. "High debt levels will slow down your saving and investing abilities when you start working, so do everything you can do to stay out of debt," says author and financial coach David Campbell Lester. Obviously, this situation isn't ideal for everyone — especially students who take loans during the school year and don't find full-time work right away. Once you graduate, talk to a financial planner to figure out how much you should save each month, and if you're a student, talk to your school's career centre for part-time work or look for grants or scholarships.
This can either be someone who works at your bank or someone you know who is really good with their money. Meet with your mentor once a month and discuss your challenges and successes thus far in terms of your career and finances, Lester says. And although it may be a little embarrassing to share your savings and debt numbers with someone you know, remember, we've all been there at one point.
"When in school, get a part-time job that will complement your career when you graduate, and give you cash to keep out of debt," Lester says. Although getting part-time work can be tough during the school year, try looking at jobs on campus that can work around your schedule, and give you more skills in your preferred field.
If you love your credit card and treat it like a best friend, make sure you're using it for the right things."Build credit by paying your mobile, cable, internet, and other fixed costs on your credit card and then pre-authorize a full payment at the end of the month," he says. Don't make of habit of paying for everything on credit — especially if you can't pay it off. Also, when you are looking for a credit card, choose one (or two) that will benefit you with either points or a cash back feature. Credit can be your friend, as long as you don't create a hole of debt.
If you know you have $100 a week to spend on food, coffee, entertainment, etc. then leave that amount in a "spending account," or take it out in cash every Sunday, Lester says. If you are the type of person who is more likely to spend cash if they see it in their wallet, start with a small amount, like $20 to $40 per week.
Make your own coffee that day, pack your lunch, stay in and watch Netflix, and make your own dinner. Start this challenge by bringing your lunch every day, for example. Turn it up a notch by implementing financial-free weekdays at least three times a week. "Going out only once a week will save you a ton of money," Lester says.
Have your bank transfer 10 to 20 per cent of your paycheque into a savings account every time it goes in. Over time, it will grow and you won't even miss the amount. If you're worried about spending it, try opening up a separate bank account without any fees or invest in a TSFA. Remember, once you get comfortable, you can move up the percentage.
Looking into the future, start thinking about investing in property. "Real estate has gone up in the long run and there isn't a single better investment for retirement than a home that is paid for," Lester says. Although this may seem out of reach for most millennials, start saving early by putting away a certain amount of money each month for a condo or house, live with roommates to decrease your own rent costs, and keep an eye out for new buildings or units in your area.
"I know it seems boring, but once you have a portfolio of investments pumping money into your account, you'll see it as fun too," Lester says. Join an investing group, watch the news for the latest numbers or pick up some investing books from the library.
Take a minute to actually figure out where your money is, including how much money you have in each account, money you owe and money you have invested, if any. "You don't have to cut out expensive coffees, shop with coupons, and live like a hermit to be a money champ. Spend less than you make and save 10 to 20 per cent for your future," Lester says. If your net worth is increasing year after year, you're on the right track.
"Adding student debt, credit cards or payday loans to job insecurity and no financial safety net increases the risk that a millennial will become insolvent," company co-founder Ted Michalos said in a press release.
Millennials were also the most likely to turn to payday loans to make ends meet, according to Hoyes, Michalos and Associates. Nearly 40 per cent of their young millennial clients had at least one outstanding payday loan.
Not just a problem in Ontario: credit-counselling firm
The province isn’t the only one to see rising numbers of insolvent young people.
Credit-counselling firm BDO Canada says it’s a national phenomenon.
"I don’t have hard data, but anecdotally we’ve seen an increase in the number of millennials filing for insolvency," Senior Vice-President Bruce Caplan told Global News.
The Office of the Superintendent of Bankruptcy Canada doesn't break down insolvencies by age, so there is no national data on young people.
Student loans are a big contributor to millennials' debt — just over a third of Hoyes, Michalos and Associates' clients were carrying this sort of debt. Tuition fees are also rising across Canada. Full time undergraduate tuition cost nearly $6,400 during the 2016-2017 school year compared to about $4,400 a decade beforehand.
But Ontario students will soon see some relief. Starting this upcoming school year, the Ontario Student Assistance Program will pay the average cost of tuition for students whose families make less than $50,000 a year.
That doesn't solve the problem of underemployment and unemployment, but it does mean that fewer graduates will start their working lives already set up to struggle with debt.