Accumulating debt is a problem usually associated with young adults fresh out of college with student loans to pay off or growing families taking on mortgages and car payments. But surprisingly, Canadian seniors are piling on debt faster than any other segment of the population over the age of 18.
According to a report in the Financial Post, new survey results show an increase in the average debt across all ages but seniors racking up debt increased by 4.3 per cent over last year. Not counting mortgages, the average Canadian debt load is $22,595 per person and even while this trend may be a concern, the number of delinquencies is down from a year ago, especially among seniors.
But the underlying question is why are seniors increasingly adding debt in their golden years? Is it poor retirement planning? Or are more parents and grandparents helping their adult children financially?
The answer is probably a result of seniors being part of a sandwich generation. Often older adults are helping to pay off their grown children’s student debt while financially assisting in the care of aging parents or paying for some of their grandchildren’s expenses. Older adults are often living in their most valuable asset, their home, and are taking out reverse mortgages or lines of credit to improve cash flow rather than sell.
Low interest rates are also a contributing factor to older adults accumulating debt. With home equity lines of credit as low as 3 per cent, seniors may be adding debt to buy real estate, renovate their home or buy big ticket items like cars or home electronics. But on a fixed income with very little wiggle room, a large home or car repair can end up putting seniors in escalating debt, especially if they turn to high interest pay-day loans to bridge the gaps.
To learn more about managing debt in older age, visit the American Association for Retired Persons by following this link.