While our 20s and 30s are supposed to be a carefree time, a great number of millennials are being dragged down by the chains of debt.
“I’m seeing more and more millennials, ” say Rob Kilner, a Barrie, Ontario-based licensed insolvency trustee, in a Globe and Mail interview. He reports seeing a 20% increase among young people looking for bankruptcy proposals, consumer proposals, credit counselling and other debt solutions. “Every time you see a millennial walk into your office, it’s disturbing.”
Paying Debt Before Saving for Retirement
Earlier this year, BMO Wealth Management released a report called “Generation Why,” which found that 23% of millennials insist paying off debt was their greatest financial concern – a far more pressing issue for them than saving for retirement.
Their worry may be well-founded. The Canadian Federation of Students reports that, in 2017, this age group was carrying an average of $27,000 in debt.
According to the BMO report, other financial concerns include finding better or more meaningful work (17%); purchasing or upgrading homes (16%); upgrading their education (14%); saving for retirement (11%); putting aside emergency funds (10%); and saving for a major purchase within two years (9%).
Study subjects also said the lack of job opportunities and uncertainty in personal relationships, such as costly separations and divorces, hamper their ability to save.
The Cost of an Education
The reasons for going into debt are diverse. Financial institutions are quick to give out credit cards and loans to young people, who, with modest jobs, have trouble making payments on bills and often wind up defaulting. And with the rising cost of education, many millennials have significant student loans, which can’t be discharged or forgiven if they seek debt relief by filing for bankruptcy.
“With the number of students pursuing post-secondary education, twice the number of previous generations, millennials have focused on higher education as the best path to increase their opportunities,” explains Chris Buttigieg, Director of BMO Wealth Management’s Wealth Institute.
But the problem seems to be that not enough of them have done the hard math on what kind of burden their debt will be if their education doesn’t quickly lead to work opportunities.
Becoming House Poor
Before parents start shaking their heads about spendthrift children, they should look at the circumstances facing this generation. Not only are job opportunities hard to come by, cities (where most young people live) are far more expensive to live in than in previous generations.
Owning a home is a priority for many young people. But even if they manage to save up for a down payment on a mortgage and can carry the monthly payments, they often have to live close to the line, becoming “house poor.” Costs like insurance, repairs, property taxes and utilities can prove too much for them.
Time to Beef Up Their Long Game
According to BMO, millennials need to add long-term planning to their short-term drive to reduce debt. They might consider consulting a financial planner, who can help them prioritize goals and lay out the right course to achieve them. When young people save, they often turn to savings accounts. Instead, they should look to the tax advantages of using saving vehicles such as tax-free savings accounts (TFSAs) and registered retirement savings plans (RRSPs).
Young people also need to remember that neither they, nor their stuff, is immortal. The right insurance plan can help protect them and their property from unforeseen calamities such as illness, accident or fire damage.