Pandemic pressure pushes debt index to worst-ever level

More consumers at risk of sinking further into debt as hopelessness and complacency set in, poll suggests

Pandemic pressure pushes debt index to worst-ever level

In the face of pandemic-driven despondence and low interest rates, it seems the pain of debt will continue well into 2021 for a large proportion of Canadians.

The MNP Consumer Debt Index, conducted quarterly by Ipsos on behalf of MNP LTD, has reached its lowest point since its 2017 inception. Since the September wave, the index has dropped 5 points to settle at 89 points, marking the largest quarterly decline in the survey’s history.

“Almost one year into the coronavirus crisis, the financial confidence of Canadians has reached a low point,” said MNP LTD President Grant Bazian in a statement. “The virus has understandably created significantly more financial anxiety for those directly impacted by job loss, declining wages and business closures.”

Among Canadians surveyed, 43% – a four-point increase from September – said they’re not confident they can cover their living expenses over the coming year without taking on more debt. Roughly the same number were reportedly concerned about their current levels (42%) or regret taking on the amount of debt they have (45%).

The survey also uncovered an undercurrent of insecurity with respect to negative surprises, as only three in 10 Canadians (29%) expressed confidence that they could cope with life-altering events without increasing their debt burden. Those include loss of employment or change in wage or seasonal work (only 25% were confident in their ability to handle such an event without borrowing more), a death in their immediate family (23%), and a change in their relationship status (29%).

As many as three in 10 Canadians surveyed (28%) said that as a direct result of the pandemic, they’ve gotten into more debt. Modes of borrowing ran the gamut from using credit cards (15%) or lines of credit (8%) to pay off bills, asking friends or family for money (10%), taking out a bank loan (3%), or using a payday loan service (3%).

The temptation to take on debt appears to have been elevated by the accommodative interest-rate environment. Six in ten (61%) or survey participants said they felt now is a good time to buy things they might otherwise be unable to afford, and 47% said they’re more relaxed about carrying debt than usual because of current low rates. Since the June edition of the index, fewer people reported losing sleep due to COVID-19 economic concerns (22%, -12 since June) or the recession (20%, -5 since June).

“Low interest rates may be providing unwarranted comfort. Some risk being lulled into a false sense of security that will put them in a debt trap,” Bazian said.

Underscoring the risks of overdependence on debt, the survey found nearly half of Canadians (47%) dreading that they’d be in financial trouble if interest rates were to rise. One in four (24%) said personal debt is keeping them up at night, and nearly as many are losing sleep worrying about how to pay their bills (20%) or how they’d pay for essentials for their family (19%).

“When individuals experiencing financial turmoil try to manage it by taking on additional debt, the results can be disastrous,” Bazian said. “They end up trying to fill a hole by digging another one.”

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