Earlier this year Licensed Insolvency firm Hoyes, Michalos & Associates Inc. published their fifth biennial Joe Debtor study, which looks at the different faces of debt. We analyzed their different risk groups, and found that millennials are increasingly turning to insolvency to deal with their debts. From their 2015-2016 study, millennials (ages 18-29) made up 14% of all debtors, the study before that, they only made up 12% so they’re insolvent population is slightly up.
With part-time or intermittent income, a heavy student debt load on their shoulders, and a lack of savings, millennials are facing a future of debt. A demographic living pay cheque to pay cheque, the Ontario study found that millennials were most likely of any age group to have used payday loans and they held, on average, 3.1 payday loans at the time of their insolvency.
With a limited cash flow and using alternative volatile lending such as payday loans, there’s no room left over to build a safety net.
Only 23% of insolvent millennial debtors had an RRSP. The average amount saved was $2,722.
Home Ownership Still A Priority
Only 5% of indebted millennials surveyed in this study were homeowners. A recent poll from CIBC states that “home ownership is as important to millennials (86%) as it is to most Canadians (85%)”. What’s difficult for millennials is that they want to own their own home, but they don’t have the means to make their down payment.
And saving for a down payment isn’t getting easier with time. Even with increasing real estate prices and interest rates on the rise, millennials are still holding out hope for home ownership.
What Can Millennials Do About Debt?
Build an Emergency Fund – Millennials (and anyone for that matter) should start by setting a savings goal. No matter how small, it’s still a goal to work towards. Try starting off with just $10 off of each pay cheque and increase that as you can.
Identify Wants vs. Needs – Set a budget, prioritize your needs (rent, utility bill, car payments, gas, insurance, etc.) and then see how much you have left over for your wants. As tempting as it is to join your friends for every dinner and night out, preparing meals and eating at home is more cost efficient. You can always join them later on, or recommend a pot luck or movie night at home.
Student Debt: Don’t Overdo It – It’s easy to get sucked into the attractiveness of student loans. You can borrow money now, and don’t have to pay it back until you’re graduated. Sounds perfect, except it’s not. You’re not borrowing free money, you’re putting yourself into debt every time you pull from that line of credit. Only borrow what you need and set repayment goals.
Use Credit Wisely – Similar to student debt, once you’re graduated and have your very first job you’ll have banks and lenders knocking down your door to get your business. Remember that a credit card, or personal line of credit is debt. Don’t use it unless you’re able to repay it in full.