From near-zero to the highest interest rates in over two decades, Canadians’ debt outlook has reached the most pessimistic point since tracking began five years ago, according to the latest MNP Consumer Debt Index.
“There is no mystery as to what is causing Canadians’ bleak debt outlook: it’s getting increasingly difficult to make ends meet,” said Grant Bazian, president of MNP LTD, the country’s largest insolvency firm. “Facing a combination of rising debt carrying costs, living expenses and concern over the potential for continued interest rate and price hikes, many Canadians are stretched uncomfortably close to broke.
Grant Bazian
“For now, the financial concerns of some Canadians have been offset, at least to some degree, by the strong job market. The uncomfortable truth is that higher interest rates slowing the economy will inevitably come with consequences like increased unemployment.
“Bills and debt obligations and the ever-increasing cost of living may be somewhat manageable when income remains consistent but suddenly become troublesome when the unexpected occurs, even after cutting back on non-essential spending.”
Reflecting on their current debt situation compared to one year ago, more rate their current situation as much worse, an increase of 2 points from the previous quarter (20%) and more say their debt situation has worsened compared to five years ago, (25%, +3pts). When asked to look into the future, more believe their debt situation will be worse a year from now (18%, +3pts). Five years from now, more believe that their debt situation will worsen (16%, +2pts) and fewer feel it will improve (35%, -2pts), said the MNP report.
More than half (51%, -1pt) of Canadians report that they are $200 away or less from not being able to meet all their financial obligations, including three in 10 (31%, -4pts) who say they already don’t make enough to cover their bills and debt payments. The average amount of money that Canadians say they have left over at the end of the month dropped significantly this quarter to $674, down $97 from the previous quarter, as the surging cost of living has chipped away at household budgets, it said.
“When it comes to the potential for future interest rate increases, Canadians feel worse about their ability to absorb further hikes compared to last quarter. More (28%, +5pts) say their ability to deal with an increase of 1 percentage point has worsened. This question was rephrased to ask their ability to absorb an additional $130 in interest payments on debt, to which four in 10 (37%, +5pts) say their ability to absorb this increase is much worse,” said MNP.
“While Canadians’ debt outlook and ability to absorb additional interest rates have deteriorated, there were a few bright spots in the data. Overall, the MNP Consumer Debt Index improved slightly to 86 points, up 3 points since last quarter, but remains below the five-year average. Canadians are feeling marginally better about their ability to pay their debts (62%, -4pts), being in financial trouble (60%, -3pts), or being driven towards bankruptcy (45%, -5pts). Four in ten Canadians regret or are concerned about their current level of debt but, perhaps adjusting to the higher interest rate environment, the number who have regrets (45%, -7pts), or feel concerned (45%, -3pts) declined this quarter.”
The report said four in 10 Canadians worry about someone in their household potentially losing their job (38%. -2pts).
Bazian said higher unemployment and underemployment, where individuals either make insufficient income or are given insufficient hours to meet their household expenses, is one of the leading causes of insolvency.
“That’s when the danger of relying on credit to meet basic household needs becomes a real risk. Initially, households use credit with the idea that the reduced income is temporary and that they will be able to pay off the debt as soon as their circumstances improve. Using credit to pay for one bill, then another they start to miss payments and end up on a high-interest debt treadmill,” he said.
Mario Toneguzzi
Mario Toneguzzi is Managing Editor of Canada’s Podcast. He has more than 40 years of experience as a daily newspaper writer, columnist, and editor. He was named in 2021 as one of the Top 10 Business Journalists in the World by PR News – the only Canadian to make the list)
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