Yahoo Finance Low rates make Canadians more comfortable borrowing for things they can't afford: poll
Anxiety about personal finances during the COVID-19 pandemic is running high, but low interest rates are making Canadians more comfortable borrowing money, even though many Canadians continue to rely on federal government benefits like the Canada Recovery Benefit (CRB).
The MNP Consumer Index gauges how people feel about their debt and ability to make ends meet. It has fallen to the lowest level and with the largest quarterly decline since tracking began in 2017.
The poll found only 40 per cent are confident they can cover their expenses without going further into debt, and are concerned about their current level of debt. Even fewer (29 per cent) said they could weather unexpected expenses without taking on more debt.
“The virus has understandably created significantly more financial anxiety for those directly impacted by job loss, declining wages and business closures. The Index shows that financial pressure is mounting for a large proportion of the country,” said MNP President Grant Bazian in a release.
Despite all of the challenges and stress around debt, record low interest rates have helped respondents feel remarkably comfortable taking on more of it. Central bank intervention has pushed interest rates to record lows, leading to 61 per cent saying now is a good time to buy things they otherwise couldn’t afford. But nearly half said they could be in financial trouble if rates rise.
False sense of security
Credit Canada’s Adriana Molina says low rates and government benefits have created a false sense of security and taking on more debt isn’t the answer. Instead, she suggests thinking about tapping your emergency fund in part because of the flip side of low interest rates.
“If you've been saving for a rainy day, guess what? It's pouring. The interest you earn on savings, in many cases, is significantly less than the interest charged on unsecured debt,” she told Yahoo Finance Canada.
“So, if you were saving for a vacation, new phone, etc. it might be worth using those funds to pay off any high-interest debt you may have or to float you over the next few months, so you don't have to rely on debt and/or credit.”
Molina says it’s important to keep up debt with payments to avoid hurting your credit score. Anyone that’s struggling to do so can get free counselling from Credit Canada and can negotiate with your creditors.
Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jessysbains.
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