Inflation may be easing but household budgets are still constrained
While economists weigh the impact of jumbo interest rate cuts and the risks of disinflation, for many Canadian households the benefits are yet to be felt.
As holiday season approaches, tight budgets mean making some unwelcome decisions about spending on fun and gifts for loved ones, with a new survey revealing that 79% of respondents plan to spend less this year.
The BMO Real Financial Progress Index also shows that 54% continue to be concerned about inflation and 36% are concerned about their own financial situation. More than half say they have anxiety related to holiday spending.
Although almost seven in ten respondents feel confident in their financial situation, just 53% feel they are making real financial progress and one quarter feel less financially secure than they did a year ago.
The biggest causes of financial anxiety identified include their overall financial situation (82%), fear of unknown expenses (82%), housing costs (73%) and keeping up with monthly bills (64%).
"Faced with higher living costs and a rising unemployment rate, it's no surprise that many Canadians are planning to scale back their holiday spending plans this year," said Sal Guatieri, Senior Economist, BMO. "Thankfully, the Bank of Canada is also concerned about the weak economy and possibly undershooting its inflation target and will likely continue to reduce interest rates through next summer. This should add some cheer to the 2025 holiday shopping season."
But tightening their belts does not mean a gloomy 2024 holiday season ahead, just spending more wisely, and the average planned spending is $1,991 including $1,802 on travel, $519 on gifts, $295 on entertaining, $141 on decorations, and $275 on other holiday-season-related expenses.
Most (79%) plan on buying fewer gifts this year, and over a quarter (27%) will cut down the number of people on their gift list, while 36% plan to buy less expensive gifts.
Credit cards are likely to take most of the strain of holiday spending with 55% of respondents planning to add to balances, while 5% plan to use buy-now-pay-later tools. Paying off that debt is expected to take three months on average, but 21% are not sure they will pay their holiday bills on time and 11% are concerned when or if they will be able to clear these debts.
"While affordability and cost of living concerns will be top of mind for many this holiday season, Canadians are still finding ways to celebrate the season by reevaluating their priorities and adapting their spending habits," said Gayle Ramsay, Head, Everyday Banking Segment & Customer Growth, BMO. "Ahead of holiday parties, trips and gift exchanges, Canadians are encouraged to work with an expert to develop a personalized plan that reflects their long-term and immediate goals and take advantage of the convenient digital tools available to monitor their budgets to alleviate some of the financial stress the holidays can bring and help them make real financial progress."
Charitable giving
Despite concerns about their own finances, many Canadians plan to help charities and other organizations this holiday season with 59% planning to give as much as in previous years and an average of $275.
Among the almost two thirds planning charitable giving, a third plan to contribute money and/or donate stocks, securities and/or mutual funds to charitable causes while 17% intend to volunteer their time.
"Recognizing many charities and organizations are under increased strain during these challenging times, it is encouraging to see Canadians are planning to be generous and are making incredible efforts to spread hope and progress in their communities this holiday season," Lydia Potocnik, Head, Estate Planning & Philanthropic Advisory Services, BMO Private Wealth Canada. "For those considering gifting their time and/or resources, working with an expert can help develop a giving strategy that allows for more thoughtful support towards the causes aligned with their values and can help bring meaningful change in our communities – not only during the holidays, but throughout the year."
