Debt levels and Insolvencies by Age and Location

Insolvencies by Age and Province

A lot of money is tainted. It taint yours, and it taint mine. 😀 That’s why it’s important to make the most of the money we do have and spend it responsibly. But sometimes if we don’t have enough money to buy what we want, we’ll need to use debt.

There’s nothing inherently wrong about borrowing money, but we have to be careful to not overextend ourselves. When we are no longer able to service our debt payments we are considered to be insolvent. The insolvency rate for Canadian consumers is only 4.2% and has been steadily declining since 2010. Here’s an interesting chart via the Government of Canada showing the distribution of insolvency by age groups.

15-07-consumer-debt-by-age-Insolvencies by Age and Location

According to the graph adults between 25 to 29 years old such as myself only represent 7.1% of all insolvency cases. This is lower than most other age groups. On the other hand, Canadians between the ages of 40 and 44 are most likely to become insolvent.

Younger adults are generally still building up their financial stories. It’s easier for younger workers to change careers. And they’re also more likely to live with their parents. Meanwhile, middle-aged folks have fewer financial options. It appears after we turn 40 we’re likely busy raising families. Salary increases are not as generous as earlier in our careers. And some of us will need to start taking care of our aging parents. This sounds like the worst time to be worrying about debt problems, yet the evidence shows this is exactly when we’re most likely to struggle staying solvent.

How can we prepare for this mid-life financial risk?

Allow me to present a brief case about debt and age groups. 😀


Below is a chart representing the average amount of debt people had in 2012 by age group.


Right now there are more insolvent people between the ages of 35 to 44 than there are for everyone under 35. So the case I want to make is what if we switched the amount of debt people owe between these two age groups. In other words, switch the 2 left most red bars in the above graph.

By front-loading most of our debt burden to the earlier stage of life we essentially shift the risk forward in time where we have more flexibility. Then by our mid-30s we can start to deleverage and reduce our debts to lower our chances of facing a debt crisis later on. 🙂 This has been my plan from the beginning. If I do risk becoming insolvent I’d rather go through the experience now so I still have lots of time to learn from my mistakes and recover. 😀

More Debt Now or More Debt Later

By using debt to invest in businesses, real estate, and stocks in our 20s there will be plenty of time for our investments to compound and grow! It’s about buying more than we can afford today so that we don’t have to tomorrow. People who are 50 to 54 are the 3rd most likely age group to have trouble meeting minimum debt payments. But a 25 year old who buys a home with a 25 year mortgage amortization will be mortgage free when he turns 50. Without any more mortgage payments he’s in a better position to send his kids to college, reduce his hours at work, travel more, or access other options.

So taking on a large mortgage at a young age is not dumb. It’s actually smart. 😉 It’s darn near impossible to buy a home without borrowing money. So the sooner we borrow that money and get into debt, the sooner we can pay off that debt and retire.

Having a high debt to equity ratio right now is simply the cost to being debt free sooner in the future. Once I’m 35 years old I’ll reduce my debts and adjust my balance sheet to my new risk tolerance. This plan should work as long as the investments I’m buying today achieve a higher average rate of return than the interest I’m paying on my debts. I look forward to the freedom and security once I become financially independent. 😉

Random Useless Fact

they have horrible eyesight and they place their cubic poop outside their burrow so that when they return from eating, they recognize their home.


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07/28/2015 5:30 am

A bit un-nerving that 10% of seniors are going insolvent, especially when, according to the second graph, they have the lowest debt levels.

Wonder how high this rate will jump during full Boomer retirement? Would be interesting to study the inputs of the first chart to see the causes of insolvency.

Mr. Chen
Mr. Chen
07/28/2015 8:53 am

Thanks for the post, Freedom 35.

I’m curious as to what the current values are as millennials are refraining from investing and have to tack on student debt. In addition, it’d be great to see how the values changed every ten years.

Mr. Chen

07/28/2015 10:26 am

The mortgage your retirement strategy. It can be effective, as long as you can survive the max draw-down. There’s an interesting thread on bogleheads where someone started this strategy in 2007 and continued documenting his progress all the way through the crash.

07/28/2015 8:49 pm

I think it’s likely just 6 people went bankrupt in Nunavut.

07/28/2015 9:39 pm

Great post, but I’m definitely going to fact check that wombat poop fact….and apparently you are correct. That’s bizarre.