Canadian confidence in tackling debt drops to historic low

Canadian confidence in tackling debt drops to historic low

Canadian confidence in tackling debt drops to historic low

Following up from its previous poll of debt-laden consumers, insolvency firm MNP has found that even more Canadians are concerned about their ability to shoulder debt.

“The MNP Consumer Debt Index has fallen four points since December, signalling growing concern and deteriorating financial stability for many,” the firm said in its latest quarterly survey.

In the Ipsos poll commissioned by the firm, nearly half (48%) of Canadians report being $200 or less away each month from financial ruin, representing a two-point increase from the previous survey. That includes 26% who say they have no financial leeway at the end of the month because they don’t make enough to cover their bills and debt payments.

“This isn’t simply a matter of people living beyond their means,” said MNP President Grant Bazian. “The reality is that too many households simply cannot make ends meet, however hard they try.”

Canadians’ concern over their finances began in September 2017, when the Bank of Canada hiked interest rates contrary to observers’ expectations. Since then, their perception of their debt situation has declined gradually, and is reportedly near its lowest levels since MNP started tracking.

More than half of Canadians (54%) have become more worried about their ability to repay debts; a little less than half (47%) believe financial trouble could come with another increase in interest rates. Thirty-five per cent have a dourer outlook, saying that a rate increase could move them toward bankruptcy.

“Canadians appear to be maxed out with no real plan for paying back what they have borrowed,” Bazian said. “This raises many alarming questions about how and if consumer debt will be repaid, particularly if conditions deteriorate or interest rates rise.”

Canadians’ confidence in their financial ability to withstand either a 1% interest-rate increase or a $100 bump in interest payments on debt has reached a historic low. The Bank of Canada’s recent decision to hold interest rates steady has dulled some of the fears over rates since December, though that still leaves 47% of those polled saying they’re concerned about how rising rates would impact their financial situation.

In spite of red flags about the direction of the economy and interest rates, Canadian households are continuing to take on debt. The poll revealed a 2% year-on-year increase in the number of Canadians who report taking on consumer debt, bringing the proportion up to 67%.

Furthermore, 44% see themselves sinking deeper into the quagmire as they believe they have to borrow more in order to cover all their living and family expenses in the next 12 months. Over a third (37%) of all respondents cite concerns about their current debt levels, and 41% expressed regret over the amount of debt they’ve accumulated throughout their lifetimes.

“Credit has become inextricably woven into Canadian household budgets,” Bazian said, noting an entire industry of lenders, credit-card companies, and retailers that encourage consumer borrowing. “Paying down debt or saving for the future is seen as more of a luxury than a necessity.”

There was a spot of optimism within the numbers, as over a third of respondents (35%) expected that their debt situation will improve in a year, and nearly half (45%) anticipated improvements in five years.

 

Follow WP on Facebook, LinkedIn and Twitter