A recent survey finds that 37% of 2018 insolvencies in Ontario involved millennials (born 1981 to 1996), up from 35% in 2017. Trustees in bankruptcy note that predatory Payday Loans and student debt are the biggest financial scourge impeding millennials today. As borrowers pass the 7-year limitation for student debt forgiveness, insolvency filings naturally rise. In the end, this means that taxpayers foot the bill for unaffordable post-secondary education costs which have been enabled and inflated by easy lending over the last decade. This system is doing no one favours, least of all our economic resilience.
This is not about young people being lazy or unmotivated. Eighty-eight percent of millennials filing for insolvency in 2018 were working but earning 3.9% less than the average Canadian debtor and over 10% less than Gen X (born 1965 to 1980) debtors. Less than 3% of millennial debtors owned a home at the time of filing.
These trends are all connected: Easy lending and asset inflation policies drove a housing mania which has locked out younger workers from home-buying prospects in most markets, and this is especially true of those who are carrying student debt. Without owning a home, they are then also unable to refinance unsecured loans in a lower rate mortgage. See Young Canadians are fastest-growing insolvency group:
“Even those Millennials who have entered the housing market likely bought at higher prices, which has also limited their ability to refinance,” adds Hoyes. “When they file insolvency, the average equity in their home in 2018 was only 7%. Really, they have no room to maneuver.”
Also, see Millennials so buried in debt they can’t buy into the American Dream of buying a home:
About $1.46 trillion in student loan debt has many millennials, as well as others, hiding their wallets and putting big ticket commitments on the back burner.
Plain and simple, many young consumers just aren’t ready to consume. And many sure don’t want to shop until they drop like their parents.
“This is really a pervasive trend and it will not be reversed any time soon,” said Richard Curtin, director of the University of Michigan Survey of Consumers.
Older folks are wise to appreciate that no nation advances well by sacrificing its young. While many developing countries have started out exploiting children for cheap labour, eventually they come to understand that investing in the health and education of our young is critical to longer-term prosperity and progress, and essential if we are to afford the care and cost of aging populations.
After two decades of policies focused on monetary ease and price inflation, today’s asset owners hold the bulk of the paper net worth. At the same time, the corollary of high prices is low yields, and so most owners are asset flush and income-poor heading into retirement. To raise cash, they need buyers for their assets, to have buyers we need financially-able younger people. This will require lower debt-levels and lower asset prices. We have to give to get; it’s that simple.
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