Expert sees wavering confidence among households amid concerns over increasing cost of living
The most recent Consumer Pulse poll by TransUnion has revealed two fifths (41%) of Canadians said their home finances were worse than expected, an increase of four percentage points from Q3 2021.
The majority (81%) of respondents said that their household income had either increased or stayed the same during the previous three months. However, this perception is likely due to growing inflation as well as the effect of higher interest rates on disposable income and purchasing power.
Inflation was identified by 69% of households as the #1 or #2 concern affecting their household finances in the upcoming six months, illustrating the growing cost problems plaguing many of them.
Regarding household finances over the long term, 29% of Canadians voiced pessimism, an increase of 5% from the previous year.
Read more: Investors dash to cash amid worst pessimism since global financial crisis
“We are seeing wavering confidence among Canadians due to continued concerns around cost-of-living price increases,” said Matt Fabian, director of financial services research and consulting at TransUnion.
Fabian added that inflation hikes are surpassing income gains, according to more than half of Canadians polled. The desire for Canadians to take out new loans is being stifled by rising interest rates.
Even though most Canadians anticipate an increase or a flat level of household income, they are handling their finances in a practical way. Many people are cutting down on spending and increasing their savings, possibly to prepare for price increases and for the effects of a prospective recession.
In the last three months, more than half (54%) of respondents indicated they had cut back on discretionary spending (such as eating out, travel, and entertainment).
Furthermore, Canadians paid debts off quicker (21%); increased emergency reserve savings (21%); reduce retirement funds (15%); increased retirement savings (10%); increased use of credit available (10%); and used of retirement funds (9%).
The Bank of Canada has kept raising interest rates to control inflation, which has put a chill on consumers’ appetite for credit.
Read more: August CPI a welcome win in Bank of Canada's inflation fight
Responses varied by generation, though the vast majority (80%) of Canadians said they do not intend to apply for new credit or restructure existing debt.
Baby Boomers reported having the lowest likelihood of applying for credit (7%), while Gen Z respondents said they were more inclined to do so (42%).
Rising interest rates will have a significant or moderate impact on whether people request for loans over the next 12 months, according to nearly half (47%) of all respondents.
More than half (53%) of those who want to apply for new credit or refinance existing credit in the coming year intend to do so with a new credit card.
A third or so of Canadians were pessimistic about their household's financial situation in the coming year. However, customers are now more engaged in learning about credit.
The poll of 1,058 Canadian consumers was performed between August 19 and August 26 as part of the most recent Consumer Pulse study.
