Average Ontarian filing for insolvency uses debt to finance essentials

By The IJ Staff | March 31 2017 11:30AM

The average Ontarian filing for insolvency earns well below the median income and likely already has financial difficulties before factoring in debt repayment, new research from Hoyes, Michalos and Associates has found.

In a news release issued this week about its “Joe Debtor” research, Hoyes Michalos says debtors use most of their income to pay for necessities, not luxuries. They use more than the recommended portion of their income for housing, personal and regular living expenses. Debtors use debt to pay for day-to-day expenses and emergency expenses. As a result, debtors go deeper into debt to finance pre-existing debts.

Using debt to make up for stagnating income

"Joe Debtor is using debt to make up for a lower than average, intermittent or stagnating income," says Ted Michalos, Licensed Insolvency Trustee and co-founder of Hoyes Michalos. "It's not accurate to say that Joe Debtor is financially irresponsible. In most insolvencies, he isn't using credit to live beyond his means – he's using debt to make ends meet.  The typical insolvent person in Ontario has just $302 left each month after paying their living expenses to repay debt that carries an estimated monthly interest of $960. The math just doesn't work."

"Joe Debtor is earning enough money to qualify for credit, but not enough to balance rising living expenses with debt repayment,” says licensed insolvency trustee, Doug Hoyes. “Almost two-thirds of insolvent persons earn an after-tax household income that is in the bottom quartile of household earnings in Ontario."

Millennials account for 14% of insolvencies

Millennials aged 18-29 now make up 14 per cent of Ontario insolvencies up from 12 per cent in 2015. "Adding student debt, credit cards or payday loans to job insecurity and no financial safety net, increases the risk that a millennial will become insolvent," says Michalos.

To learn more about the research, click here