Canadian household debt outlook now at five year nadir
As Canadians wait to see whether the BoC will pause interest rates again next week, a new report highlights the punishing double impact of inflation and higher rates on household debt.
More than half (51%) of Canadian households say they are just $200 from not being able to meet their financial obligations including paying bills and debt payments with three in ten already at that point.
Average households are $97 worse off in terms of money left at the end of the month ($674) than they were in the previous quarter.
The latest MNP Consumer Debt Index makes for uncomfortable reading with the surge in rates from near zero to the highest in two decades weakening respondents’ debt outlook to its lowest point in five years.
Specifically, in this quarter 20% say that their current debt situation is worse than a year ago, rising 2 percentage points since the previous quarter; 25% say that it is worse than it was five years ago (up 3 points from the last quarter); and 18% believe it will be worse a year from now (up 3 points from the last quarter).
Looking ahead five years, 16% believe their debt situation will have worsened from now and 35% think it will have improved.
“There is no mystery as to what is causing Canadians’ bleak debt outlook: it’s getting increasingly difficult to make ends meet,” says 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.”
While it may be unlikely that the BoC will hike rates at its October 25 meeting, the fear is real for those struggling with increased payments.
When asked if they could absorb an extra $130 in interest payments on their debt, 37% said their ability to do so is now much worse than it was in the previous quarter.
Improving situation?
While there are concerning stats, the index overall improved to 86 (up 3 points) from the previous quarter, although it is below the five-year average.
Fewer responses indicated being in financial trouble (60%, -3pts), or being driven towards bankruptcy (45%, -5pts) but 45% regret their current debt level or feel concerned, although these metrics also declined.
“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,” added Bazian.
Four in ten Canadians worry about someone in their household potentially losing their job (38%. -2pts), according to the survey.
