Index shows deterioration in financial resilience as variable rate mortgages and cost-of-living crisis crush savings
As high interest rates, elevated costs of living, and the threat of recession continue to take their toll, everyday Canadians are growing increasingly vulnerable, according to new research from the Financial Resilience Institute.
Drawing on data collected in October 2023, the firm said the ninth snapshot view of its proprietary Seymour Financial Resilience Index showed an increase in financial vulnerability among Canadians.
The deterioration in financial health, the institute said, was especially pronounced among variable interest rate mortgage holders, as well as residents of Québec and British Columbia.
“I’m concerned about the growing financial vulnerability of Canadians, especially those with variable interest rate mortgages and other vulnerable households,” stated Eloise Duncan, the Financial Resilience Institute’s founder and CEO.
Read more: Millions of Canadians already struggling with mortgage payments
In Q2 last year, the Canadian economy slowed down unexpectedly with a 4.4% annualized contraction in GDP per capita. Against that backdrop, Canada’s mean Financial Resilience Index score clocked in at 50.78, down 1.67 points from June last year and five points from June 2021.
An estimated four out of five Canadians (80%) – 19.96 million adults – fell outside the institute’s “financially resilient” segment, including 18.7% who scored “extremely vulnerable.”
The shadow of financial insecurity touched Canadians of all income levels, the institute reported, with 37% of Canadians having negative or zero household savings and 24% having at most a three-week buffer of liquid savings.
Around two thirds of households (68%) said they were tightening their belts by dialling down non-essential expenses. But credit challenges remain for more than two fifths (43%) who reported having to draw down savings to service their debt, and a quarter (25.4%) who said their debt levels were unmanageable.
Read more: 'Inflation isolation' reflects Canadians' cost of living and debt challenges
Apart from variable interest rate mortgage holders and financially challenged households, the index found single parents, Indigenous Canadians, and those saddled with debt were particularly vulnerable from a financial perspective due to high living expenses and borrowing costs.
Housing affordability was also a prominent theme, touching the lives of just over half (53%) of Canadians overall, including four fifths (79%) of “extremely vulnerable” households. By the end of 2024, survey participants expected their monthly mortgage payments to escalate by 30% as borrowing costs continue to swell.
Among variable-rate mortgage holders, a concerning majority (88%) said they found rising interest rates problematic, with nearly two thirds (64%) reporting high levels of financial stress as they contemplate their financial obligations today and in the future.
“Our data signals how important it is for Policymakers, Financial Institutions, Employers and others to support their stakeholders’ financial well-being, with 2024 expected to be a tough year, particularly until interest rates come down,” Duncan said.
Have a story idea or suggestion? Email [email protected].
