Almost one third unable to pay bills while millions are leaning heavily on credit
Millions of Canadians are starting 2024 in poor financial health with concerns about paying their bills and debt obligations that could overwhelm them.
Two reports released this week highlight how the challenging economic environment of the past couple of years is impacting personal finances with many expecting things to get worse in the coming months.
TransUnion Canada’s Consumer Pulse reveals that 43% of respondents said their household finances were worse in the fourth quarter of 2023 than they planned, and while four in ten are optimistic of improvement this year, six in ten are not. Around half think their income will stay the same as 2023, 41% think it will rise, and 11% expect a decrease.
Gen Z feels the most optimistic about improving finances this year at 61%, followed by Millennials (47%), Baby Boomers (37%) and Gen X (36%).
Almost one third of those who took part in the poll said they cannot pay at least one of their bills or loan payments in full and a similar share expect their bills to increase in the months ahead. Of this group 23% said they would use a credit card or open a new one to pay current obligations.
“The impact of higher interest rates and cost of living created increased vulnerability among Canadians,” said Matt Fabian, director of financial services research and consulting at TransUnion Canada. “Consumers are forced to make trade-off decisions on how to allocate their disposable income in a more expensive environment. While Canadians remain resilient, many consumers report that bills and loans are more difficult to cover, which could lead to interest charges.”
Respondents are trying to keep on top of their finances in case there is a recession with 57% reducing spending, 36% building up savings, and 31% paying down debt.
Debt concerns
The other report this week, from licensed insolvency practitioners MNP also highlights the perilous condition of many Canadians’ finances.
More than one fifth of respondents to the Ipsos poll carried out for the firm said their finances are worse now than a year ago and debt plays a key role in this weakened situation.
“Spending on credit has served as a relief mechanism for many to keep up with increasing costs – especially for lower-income Canadians – and we see from the data that the burden of repaying that debt is exacerbating the growing financial strain for many households, particularly amid higher interest rates,” says Grant Bazian, president of MNP LTD. “Put simply, most things cost more, debt repayment costs more and that leaves more feeling pessimistic about paying off debts, making ends meet and about their financial futures on the whole.”
Almost half of respondents are concerned about their debt burden, with 47% regretting taking on debts, 18% said they borrowed money they can’t afford to pay back quickly, and 63% are concerned about paying bills.
With inflation still not under control and no certainty on interest rates, the concerns are likely to rise especially with bills for holiday spending and mortgage renewals also incoming for many.
“With the cost of living on the rise, those households who were already overextended may feel they have to take on more debt just to afford basic necessities. The results can be disastrous because they end up trying to fill a hole by digging another one,” added Bazian.
