The profile of the average bankrupt Canadian age 55 or older may surprise you. According to a 2006 study from the Office of the Superintendent of Bankruptcy (OSB):
- 63 per cent of bankrupt seniors were younger than age 65.
- 55 per cent were male.
- 40 per cent were married.
The percentage of senior bankruptcies declines with age. Only 28 per cent of those who endured bankruptcy were between the ages of 65 and 74 when it occurred and only 8 per cent were 75 or older. But that shouldn't minimize the severe financial hardships that some elderly Canadians have to endure.
Top ten causes of senior bankruptcies
Based on the OSB study, the following catalysts caused 95 per cent of all bankruptcies among Canada's older generation.
- Overextension of credit (29.2 per cent of all senior insolvencies).
- Medical issues (14.7 per cent).
- Insufficient income (11.8 per cent).
- Loss of employment (11.2 per cent).
- Money mismanagement (9.4 per cent).
- Involvement in failed business (6.7 per cent).
- Marriage breakdown (4.3 per cent).
- Failure to pay taxes (3.6 per cent).
- Gambling (2.4 per cent).
- Inadequate pensions (1.7 per cent).
Seniors can control many of these factors, albeit with a lot of hard work. However, older Canadians with reduced fixed incomes and who face ever-increasing living expenses sometimes don't adapt their lifestyles to eliminate unnecessary costs.
"Seniors may need assistance in looking at the options with their financial problems considering their stage of life and circumstances," says Patricia White, executive director of Credit Counselling Canada.
Spiralling senior debt
Unfortunately, many older Canadians turn to high-interest debt products that they could repay when they had higher earnings -- but no longer can. One 70-year-old Canuck, for example, racked up over $41 million in total liabilities before being forced into bankruptcy. In 2005, insolvent Canadian seniors averaged $120,000 in overall debt from all sources; mortgage debt accounted for over 60 per cent of that total.
The OSB study showed that about 87 per cent of older bankrupt Canadians had credit card debt and the average outstanding card balance was $20,000. Credit cards represent the only type of debt that increased as seniors grew older. This suggests that credit card borrowings are easy for seniors to accumulate -- despite not having the means to repay.
The sad result is that many older Canucks end up with far more liabilities than assets. In the study, the average liabilities for bankrupt seniors were seven times higher than their assets.
Unfortunately, bankruptcy gives Canadian seniors a legal "out" for escaping large debts, the spiraling cycle of high interest costs and relentless pressure from aggressive debt collectors, but offers little chance to rebuild financially for a happy retirement.
Practical senior financial solutions
Planning and sticking to a monthly budget is a basic but effective way to meet long-term financial goals. The Financial Consumer Agency of Canada offers free online budgeting tools, while nonprofit organizations like Credit Counselling Canada provide low-cost or free advice on how to design meaningful budgets. Learning how to adjust spending to match earnings is an essential life skill that should be mastered preferably before reaching the dangerous 55 to 65 age bracket.
Your friendly neighbourhood bank is also a great resource for advice on how to reduce unnecessary expenses and maximize savings. Many Canadians aren't aware that most banks can automate credit card payments from their bank accounts before interest is charged.
Bank specialists and qualified financial planners can explain Tax-Free Savings Accounts (TFSAs), for example, that let Canadians build their savings. Seniors who own real estate can also ask these experts how home equity loans can lower financing costs.
Seniors may also consider a full or part-time job. Even during the global recession, employers were hiring seniors. Statistics Canada reported that in 2009 the unemployment rate for seniors age 65 and over was a mere 4.3 per cent compared with 7.1 per cent for Canadians age 25 to 54. The unemployment rate for Canadians age 55 to 64 was lower too, at 7 per cent. While job descriptions are constantly changing, older Canadians who adapt their skills to meet market needs find sustainable employment.
With an effective budget in place, help from trustworthy financial counsellors and dependable income sources, more senior Canadians should be able to live more comfortably and sensibly in their golden years.