This isn’t really surprising, if your highest level at the end of the game is a level 4 character, then you’re behind the power curve of the game. It means that all of your characters are not only missing the +2 (or more) ability points they’d get from being maxed to level 5 (which is - potentially +2 strength damage), it also means you are missing the final rank of your character’s special abilities. The difference between a rank 2 (2 armor break) and rank 3 (3 armor break) mark of prey attack is significant.
As I recall it, when I played my “canon” playthrough, I maxed out the “main” characters long before the end. Checked the final savegame, and I can see that I had all my key characters at Lvl 5, with some 100+ renown unused. I think I bought one or two items - the majority of items are simply not worth it compared to the ones you get for “free” as part of the story plot, so that looks about right.
I read in a reddit post that the max amount of renown achievable in Hard is ~750. Even if you only earn ~500, that should still be enough to level 7-8 heroes up to max (50 to take 1 hero to lvl 5), and still leave 100+ renown to purchase food for the caravan.
For sure that makes sense on a first playthrough, but in practice most of the “main cast” are invincible, so you never need to worry about them getting KIA. Since they’re also - for the most part - the best characters, that’s renown well spent.
For the rest, they can be divided into two - those who are permanent fixtures, but who can be killed by making the wrong choices - and those who are only part of the story for a short period. The former you can chose whether should die or not (and therefore chose whether or not to spend renown on them), the latter you should never spend renown on unless absolutely necessary.