Canadians more worried about rising debt amid high cost of living: MNP

Holly McKenzie-Sutter, BNN Bloomberg

Canadians are increasingly worried about their levels of debt amid rising interest rates and high inflation, according to quarterly poll results released by MNP Ltd. on Monday.

The MNP Consumer Debt Index, a quarterly snapshot of consumer sentiment in Canada, fell 15 points to 77 in a new low for the index that speaks to Canadians’ mounting concerns about their personal finances

The report also found that nearly half of respondents were concerned about their debt at 47 per cent, a record-high figure that jumped seven points from the last survey.

MNP also said that fewer people were confident in their ability to pay for living expenses this year without going further into debt, at 51 per cent, and 68 per cent said they were already feeling the effects of central interest rate hikes after last year’s tightening cycle from the Bank of Canada.

Grant Bazian, president of insolvency firm MNP, said the results show how higher interest rates and inflation are hitting Canadian’s attitudes about their debt.

“For many, this represents a double whammy, because inflation is eroding household budgets and, at the same time, financially fragile and overleveraged Canadians face sharply rising borrowing costs,” Bazian said in a written statement.

More people reported that their ability to absorb a one percentage point interest rate increase had worsened, up nine points from the last survey at 26 per cent. Three in five people said they are more concerned about their ability to pay their debts as interest rates rise, and 59 per cent said they would be in financial trouble if interest rates go much higher, the report found.

Just under half of respondents, at 45 per cent, said they are $200 away or less from not being able to meet all their financial obligations, and 30 per cent said they already don’t make enough income to cover their bills. Those figures remained consistent from the last quarter.

Canadians with household incomes lower than $40,000 and people aged 18 to 54 were most likely to feel the squeezing effects of interest rate increases and be concerned about their debt repayment abilities.

More than half of respondents said feeding their families and saving money are less affordable, and a similar percentage said transportation, clothing and housing were becoming less affordable.

A growing percentage of Canadians also reported taking on more debt. More people said they have only paid back the minimum on their credit cards or lines of credit compared with December 2021, and that they borrowed money they can’t pay back quickly. One in five people reported their would use savings to pay their bills, and one in 10 said they would use their credit cards or borrow money from friends or family.

METHODOLOGY

The MNP Consumer Debt Index measures Canadians’ attitudes toward their consumer debt and gauges their ability to pay their bills, endure unexpected expenses, and absorb interest-rate fluctuations without approaching insolvency. Conducted by Ipsos and updated quarterly, the Index is an industry-leading barometer of financial pressure or relief among Canadians.

The data was compiled by Ipsos on behalf of MNP LTD between December 1-6 2022. For this survey, a sample of 2,000 Canadians aged 18 years and over was interviewed. Weighting was then employed to balance demographics to ensure that the sample's composition reflects that of the adult population according to Census data and to provide results intended to approximate the sample universe. The precision of Ipsos online polls is measured using a credibility interval. In this case, the poll is accurate to within ±2.5 percentage points, 19 times out of 20, had all Canadian adults been polled. The credibility interval will be wider among subsets of the population. All sample surveys and polls may be subject to other sources of error, including, but not limited to coverage error, and measurement error.

Canadians focused on repaying debt in 

2023: CIBC survey

Holly McKenzie-Sutter, BNN Bloomberg

Repaying debt is a common financial goal for Canadians heading into 2023, a new survey has found, as inflation, high interest rates and fears of a potential recession stay top of mind.

Eighteen per cent of people surveyed in an annual CIBC poll on financial priorities said repaying debt was their number one goal for the new year, while 17 per cent said keeping up with bills was their top priority.

Another 14 per cent pointed to growing investments as their main goal for the year. Secondary goals included saving money, avoiding taking on more debt and reducing discretionary spending.

At 65 per cent, more than half of respondents said inflation was their top financial concern, followed by rising interest rates at 30 per cent and fear of a recession at 24 per cent.

Carissa Lucreziano, vice-president of CIBC Financial and Investment Advice, said people are focused on “what is in their sphere of control” in uncertain economic times.

"The current economic environment has, understandably, prompted Canadians to re-assess their financial priorities for 2023," she said in a written statement.

Just over half of the poll respondents said they need to get a better handle on their financial situation in the next year. One in four people said they have taken on more debt in the last 12 months, due largely to higher cost of living and expenses that stretch beyond monthly income.

Forty per cent of people said they are concerned about job security in the current uncertain economic environment, and 68 per cent said that uncertainty makes it difficult to plan ahead.

But despite concerns about personal finances and the rocky economic situation, 62 per cent of people said they feel financially prepared for the unexpected and 59 per cent said they believe their financial situation can withstand a recession – a possibility that a significant majority of respondents said they are worried about, at 74 per cent.

METHODOLOGY:

This Maru Public Opinion survey was undertaken between December 12 and December 19, 2022 by the sample and data experts at Maru/Blue and involved 1,523 randomly selected Canadian adults who are Maru Voice Canada online panelists. For comparison purposes, a probability sample of this size has an estimated margin of error (which measures sampling variability) of +/- 2.5%, 19 times out of 20. The results have been weighted by education, age, gender and region (and in Quebec, language) to match the population, according to Census data. This is to ensure the sample is representative of the entire adult population of Canada. Discrepancies in or between totals are due to rounding.

https://warwick.ac.uk/fac/arts/english/currentstudents/undergraduate/modules/fulllist/special/statesofdamage/syllabus201516/graeber-debt_the_first_5000_years.pdf

David Graeber, Debt: The First 5000 Years - University of Warwick 

Debt : the first 5,000 years I David Graeber. p. em. Includes bibliographical references and index. ISBN 978-1-933633-86-2 (alk. paper). 1. Debt-History. 

After a strong year for the economy, 2023 will be shaped by high interest rates

Nojoud Al Mallees, The Canadian Press

The Canadian economy started off the year with a remarkable recovery from the COVID-19 pandemic, but heading in 2023, high interest rates are expected to take a significant toll. 

"2022 was quite a rollercoaster," said Randall Bartlett, senior director of Canadian economics at Desjardins. 

After taking a deep plunge during the pandemic, the economy bounced back this year with strong growth and record-low unemployment. The housing market also boomed thanks to low interest rates spurring purchasing activity.

This exuberance in the economy, however, along with global pressures, led to arguably the most pressing economic issue of the year: decades-high inflation.

In turn, the Bank of Canada responded to rapidly rising prices with one of the fastest monetary policy tightening cycles in its history, setting the stage for a rockier year ahead.

"We're really expecting to see the rubber meet the road in terms of the implications of interest rate hikes in the first half of next year," Bartlett said.

Since March, the central bank has raised its key interest rate seven consecutive times, bringing it from 0.25 per cent to 4.25 per cent. That's the highest it's been since January 2008.

Canadians and businesses facing higher borrowing costs are expected to pull back on spending more noticeably in the new year. Economists expect that process to slow inflation, though how quickly, is unknown. 

"The thing that we're looking at is how quickly does inflation come down?" said James Orlando, TD's director of economics. 

Inflation peaked at 8.1 per cent in June and has been steadily declining since. Last month, the annual inflation rate fell to 6.8 per cent, showing slight but positive progress.

Orlando said TD expects inflation to fall significantly in the new year as growth globally and domestically slow. 

In its October monetary policy report, the Bank of Canada forecasted the Canadian economy will stall toward the end of year and into the first half of 2023. That's in line with projections by many forecasters, though some are accounting for a recession in the new year. 

There have been some early signs that the impending economic slowdown is already underway, with consumer spending declining in the third quarter. 

As the economy takes a turn, labour groups in particular have been concerned about the effect of interest rate hikes on employment.

However, many economists are optimistic that unemployment won't rise too dramatically given the current tightness in the labour market. 

In November, the unemployment rate was sitting near record lows at 5.1 per cent. 

"We are starting the year with very high interest rates, still stubbornly high inflation, but a solid foundation with respect to employment [and] savings for Canadians," said Orlando.

Although Desjardins is one of the forecasters predicting a recession next year, Bartlett said it's not all doom and gloom. 

"Households are coming into this in a much better position than previous recessions," he said, adding that the economy should recover toward the end of next year. 

One factor that will influence the depth of the economic downturn is whether the Bank of Canada will continue to raise interest rates.

After its last interest rate decision in early December, the central bank signalled a willingness to press pause on its aggressive rate hike cycle.

"Looking ahead, governing council will be considering whether the policy interest rate needs to rise further to bring supply and demand back into balance and return inflation to target," the central bank said.

However, forecasters are split on whether the Bank of Canada is actually ready to stop raising rates.

TD is betting on one more interest rate hike in January, while Desjardins is in the camp of no more hikes.

As high interest rates begin to weigh more noticeably on the economy, discussion is bound to turn to cuts.

Both TD and Desjardins expect the Bank of Canada to begin cutting interest rates toward the end of the next year, supporting a bounce back for the economy.

"We don't think that the central banks will be able to keep interest rates at these very high levels for too long," Orlando said. 

This report by The Canadian Press was first published Dec. 23, 2022.