Canadian households face deeper spending cuts, increased debt

MNP Consumer Debt Index shows pressure on household debts is mounting

Canadian households face deeper spending cuts, increased debt
Steve Randall

More Canadians are reporting that the cost-of-living crisis is biting hard on their household finances.

The quarterly MNP Consumer Debt Index released today (July 11) shows that 59% of respondents are already feeling the impact of interest rate rises, a seven-point increase from the previous quarter.

Making ends meet means making decisions on where spending can be cut, or in many cases taking on more debt.

The main focus for spending reduction in Canadian homes are travelling, dining out, and entertainment (46%), while one-third are buying cheaper versions of everyday purchases (37%) and driving less (30%).

Those aged 35-54 and women are most likely to be curbing their spending on non-essentials.

“No matter where Canadians turn, there is no reprieve; housing is more expensive, driving a car is more expensive, food is more expensive,” says Grant Bazian, president of MNP LTD., the country’s largest insolvency firm. “Right now, many Canadian households are trying to adjust their budgets, cutting costs where they can in order to keep up with their monthly bills. But as the cost of living continues to rise – it’s likely to get worse before it gets better – households will have to make increasingly difficult choices about what to cut, and could find themselves piling on debt to make ends meet.”

Better or worse?

Are things likely to improve in the second half of 2022?

Unlikely, the survey found, with half of respondents saying that if interest rates go up much more they will be in financial trouble.

Women and those aged 18-34 and 35-54 are more likely to agree they will be in trouble. Four in ten say that rising rates could drive them closer to bankruptcy.

Across all respondents, 55% are concerned about their ability to cover all living/family expenses in the next year without going further into debt.

“With inflation nearing a 40-year high, there is mounting pressure for more aggressive interest rate hikes to tame inflation. Canadians who are not financially prepared to absorb future interest rate increases are likely to find themselves in financial trouble soon, as they are unable to manage the increasing costs of their debt repayment obligations,” added Bazian.

Servicing debt

With rate rises, 56% of respondents said they are concerned about keeping up payments for their debts.

Two in five say they are concerned about their current level of debt and say they regret the amount of debt they’ve taken on in life.