Most Canadians are getting better at managing their debt, but there’s one group that’s surprisingly emerged as an outlier to this trend: seniors.
Delinquency rates — or the number of loans where payments are late — have risen by 4% among people aged 65 or older in the second quarter of 2018 compared to the same period in 2017, according to Equifax’s most recent National Consumer Credit Trends Report. This applies to non-mortgage debt.
In comparison, non-mortgage delinquency rates have actually dropped among people aged 26 to 35, down to 1.5% (that’s a drop of 4.6% from the second quarter of 2017) as well as people aged 36 to 45, whose delinquency rate now stands at 1.2% (representing a 4.9% drop).
Why have seniors been struggling to keep up with debt payments? According to Equifax, the answer has a lot to do with the type of debt that this age cohort takes on. While younger cohorts may carry high mortgage debt loads, seniors tend to use lines of credit — a type of loan that has been disproportionately affected by rising interest rates.
“Big ticket purchases have installment loans leading credit growth but lines of credit still represent the biggest share of consumer debt,” said Bill Johnston, vice president of data and analytics at Equifax Canada.
“Given that they typically have variable rates, lines will be the first point of impact for higher interest rates and we are already seeing some of that kicking in.”
Fifty-five percent of the non-mortgage debt load shouldered by seniors is in lines of credit. That’s compared to 43% for the rest of Canadians.
While interest rates in Canada have been at historic lows since the financial crisis to incentivize consumer spending, the economy has been looking up in recent years, prompting interest rates to creep upwards. Since July 2017, the Bank of Canada (BoC), the country’s central bank, has hiked its overnight interest rate four times.
When the BoC hikes its overnight rate, the country’s major banks typically respond by raising their rates, too. These changes directly affect credit lines.
But it’s not all so bleak for seniors. While their delinquency rates for non-mortgage debts have increased, their actual delinquency rate (0.9%) was still lower than that of the general population (1.1%).