/https://www.thestar.com/content/dam/thestar/business/2021/07/19/a-lot-of-anxiety-out-there-canadian-insolvency-at-highest-level-since-index-began-in-2017/debt_2.jpg)
‘A lot of anxiety out there:’ Canadian insolvency at highest level since index began in 2017
By Rosa Saba
Business Reporter
Mon., July 19, 2021
As the economy slowly reopens, many Canadians are staring down a mountain of debt incurred during the pandemic and almost half of them are worried about making ends meet without sustaining more debt, according to the latest Consumer Debt Index from accounting, tax and business consulting firm MNP.
In fact, the number of Canadians who are unable to pay their monthly bills and debt payments — in other words, insolvent — is at its highest level since the index began in 2017.
The consumer debt index poll of around 2,000 people, conducted quarterly for MNP by Ipsos, found that half of Canadians are more worried about being able to repay their debts than they used to be — and yet a third of respondents plan to spend more as the economy reopens on things they’ve been missing, like dining and entertainment.
Grant Bazian, president of MNP, said the consumer debt index has been fluctuating during the pandemic for various reasons, but overall anxiety about debt has definitely increased from before COVID-19.
He said Ontario is faring worse than other provinces when it comes to consumer debt and debt anxiety, likely in part due to the province’s slower reopening this summer.
“There’s definitely a lot of anxiety out there,” said Bazian.
Around a third of Canadians say the pandemic made their debt worse, or created more debt for them or their family, especially younger Canadians.
Between low interest rates and the hot housing market, younger Canadians are getting into debt that they may not know how to handle, said Bazian.
David Macdonald, senior economist for the Canadian Centre for Policy Alternatives, said that for youth in particular, debt is one of the potential long-term impacts of COVID-19, driven in part by the housing market.
“The housing market has gone nowhere but up over the course of the pandemic,” said Macdonald. “Low interest rates in part to drive economic growth have led to massive increases in house costs, which prices youth out of the market.”
If young people do manage to get into the market, they’re likely to become “house poor,” he said.
A third of respondents to the survey who own a home said they’re “house poor,” meaning after they pay their bills relating to their home, they don’t have much left over.
Around two-thirds of Canadians surveyed said they reduced their spending during COVID-19, but more than half said they have taken advantage of the low interest rates to buy things they might not have otherwise, which may be contributing to the higher debt loads, according to the press release.
However, many Canadians have been managing to save more during the pandemic, and around half say their debt situation is actually better than it was pre-pandemic.
The biggest concern for Canadians in debt right now is interest rates, according to the press release: a third of respondents said if interest rates go up, they’re worried they will be driven to bankruptcy.
For many, job prospects are still uncertain, Bazian said. Many are relying partly on income assistance such as Employment Insurance.
Though the provinces, even Ontario, have been progressing along their reopening plans, it’s unlikely employment will be back to normal levels by the time the federal subsidies for businesses and individuals, as well as the temporary EI inclusions, end in September, Macdonald said.
It is possible the government will extend some of those programs past their planned end date, said Macdonald. That’s what happened over and over again during the past year and a half. But it’s not a guarantee, and the programs can’t go on forever.
“I think maybe there’s a bit of hedging to see how strong the recovery is in July,” he said.
For Ontario, it’s not likely to be a strong rebound, said Macdonald, as the province has been slowest to reopen.
“On the reopening side we’ve been slower, and on the real estate side we’ve seen tremendous growth,” he said. “That’s going to drive the debt picture as well, is people … overextending themselves in order to get into the housing market.”
There have been predictions that when COVID-19 financial support ends, Canada will see a wave of insolvencies. But Bazian doesn’t think that’s the case.
More likely, the number of insolvencies will steadily increase month over month, he said, potentially above pre-pandemic levels.
“If they were struggling before COVID hit, and they incurred more debt during COVID, there’s a likelihood you’re going to have more people filing in a post-COVID world than you had in a pre-COVID world,” said Bazian.
Mon., July 19, 2021
As the economy slowly reopens, many Canadians are staring down a mountain of debt incurred during the pandemic and almost half of them are worried about making ends meet without sustaining more debt, according to the latest Consumer Debt Index from accounting, tax and business consulting firm MNP.
In fact, the number of Canadians who are unable to pay their monthly bills and debt payments — in other words, insolvent — is at its highest level since the index began in 2017.
The consumer debt index poll of around 2,000 people, conducted quarterly for MNP by Ipsos, found that half of Canadians are more worried about being able to repay their debts than they used to be — and yet a third of respondents plan to spend more as the economy reopens on things they’ve been missing, like dining and entertainment.
Grant Bazian, president of MNP, said the consumer debt index has been fluctuating during the pandemic for various reasons, but overall anxiety about debt has definitely increased from before COVID-19.
He said Ontario is faring worse than other provinces when it comes to consumer debt and debt anxiety, likely in part due to the province’s slower reopening this summer.
“There’s definitely a lot of anxiety out there,” said Bazian.
Around a third of Canadians say the pandemic made their debt worse, or created more debt for them or their family, especially younger Canadians.
Between low interest rates and the hot housing market, younger Canadians are getting into debt that they may not know how to handle, said Bazian.
David Macdonald, senior economist for the Canadian Centre for Policy Alternatives, said that for youth in particular, debt is one of the potential long-term impacts of COVID-19, driven in part by the housing market.
“The housing market has gone nowhere but up over the course of the pandemic,” said Macdonald. “Low interest rates in part to drive economic growth have led to massive increases in house costs, which prices youth out of the market.”
If young people do manage to get into the market, they’re likely to become “house poor,” he said.
A third of respondents to the survey who own a home said they’re “house poor,” meaning after they pay their bills relating to their home, they don’t have much left over.
Around two-thirds of Canadians surveyed said they reduced their spending during COVID-19, but more than half said they have taken advantage of the low interest rates to buy things they might not have otherwise, which may be contributing to the higher debt loads, according to the press release.
However, many Canadians have been managing to save more during the pandemic, and around half say their debt situation is actually better than it was pre-pandemic.
The biggest concern for Canadians in debt right now is interest rates, according to the press release: a third of respondents said if interest rates go up, they’re worried they will be driven to bankruptcy.
For many, job prospects are still uncertain, Bazian said. Many are relying partly on income assistance such as Employment Insurance.
Though the provinces, even Ontario, have been progressing along their reopening plans, it’s unlikely employment will be back to normal levels by the time the federal subsidies for businesses and individuals, as well as the temporary EI inclusions, end in September, Macdonald said.
It is possible the government will extend some of those programs past their planned end date, said Macdonald. That’s what happened over and over again during the past year and a half. But it’s not a guarantee, and the programs can’t go on forever.
“I think maybe there’s a bit of hedging to see how strong the recovery is in July,” he said.
For Ontario, it’s not likely to be a strong rebound, said Macdonald, as the province has been slowest to reopen.
“On the reopening side we’ve been slower, and on the real estate side we’ve seen tremendous growth,” he said. “That’s going to drive the debt picture as well, is people … overextending themselves in order to get into the housing market.”
There have been predictions that when COVID-19 financial support ends, Canada will see a wave of insolvencies. But Bazian doesn’t think that’s the case.
More likely, the number of insolvencies will steadily increase month over month, he said, potentially above pre-pandemic levels.
“If they were struggling before COVID hit, and they incurred more debt during COVID, there’s a likelihood you’re going to have more people filing in a post-COVID world than you had in a pre-COVID world,” said Bazian.
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