Higher-income households filing for bankruptcy: Insolvency study
Indebtedness is, increasingly, not an affliction of only the poor.
As living expenses rise faster than household income, more higher-income earners are struggling with debt and debt repayment, according to a study by personal insolvency firm Hoyes, Michalos & Associates released Monday.
In 2019, average household expenses, which include housing, food and transportation costs, grew by 6.4 per cent. Meanwhile, average household income rose 5.5 per cent.
“People are not getting a raise of this magnitude,” Doug Hoyes, licensed insolvency trustee at Hoyes, Michalos & Associates said in a press release Monday.
“What is happening is that more prosperous households are now reaching the breaking point and tipping into insolvency.”
Hoyes, Michalos & Associates reviewed details of 5,800 personal insolvencies in Ontario that were filed with its firm between January 1, 2019 and December 31, 2019 for their study.
The average indebted Ontarian had $264 available in monthly funds to repay debts in 2019, down from $273 the year before, according to the study. At the same time, average consumer debt loads increased 1.9 per cent last year to $58,923, higher than the average of $57,840 for the previous year.
That means the average debtor has fewer funds available to meet debt obligations, the study states.
But the study also notes that insolvencies still mostly affect “moderate-income earners.” Last year, 77 per cent of debtors had household incomes of $4,000 per month, or less. However, that represents a decline from 80 per cent in 2018. The median household income of the average debtor in 2019 was $2,883 a month, or 5.8 per cent higher than the median household income of $2,726 in 2018.
In other words, debt is still largely the domain of lower- and middle-income Ontarians, but it is increasingly affecting more-prosperous households, as well.
The study also found that the average indebted person in Ontario is getting younger. In 2019, the average age of a debtor declined by almost 8.5 months, the lowest level since the study began in 2011. Those under the age of 40 now account for almost half, or 47.1 per cent, of all insolvencies.
To make matters worse, people are taking on more expensive and riskier types of debt, according to the study.
In particular, payday loans, known for their exorbitant interest rates, have become increasingly in vogue, outpacing credit cards in 2019 as the main driver of consumer insolvencies.
Last year, 39 per cent of debtors carried at least one loan from a high-cost payday lender. That compares to 37 per cent in 2018.
“Not only is the overindebted consumer struggling to pay everyday expenses, but his credit profile has worsened, increasing his servicing costs,” Hoyes said.