Yahoo Finance More Canadians worried about debt levels, dipping into savings: MNP survey
63 per cent of Canadians say they are concerned about their ability to repay their debts
Canadians are growing increasingly concerned about their debt levels, a new MNP survey has found, as higher interest rates and cost-of-living pressures weigh on consumers and their mental health.
According to the latest quarterly MNP Consumer Debt Index survey, 63 per cent of Canadians say they are concerned about their ability to repay their debts, up one percentage point from the previous quarter. At the same time, more Canadians (22 per cent, up two percentage points from last quarter) say that their debt situation is worse than a year ago, while fewer (22 per cent, down two percentage points from last quarter) say it has improved.
As concerns about debt rise, more Canadians are dipping into their savings for repayments and daily expenses. The survey found that nearly one in five Canadians (18 per cent) have tapped their savings, home equity, retirement funds or alternative methods to pay off debts or day-to-day expenses.
“(Canadians) digging into their savings is something I haven’t seen for a while,” MNP president Grant Bazian said in an interview with Yahoo Finance Canada, adding that it’s an indication that some people are “hitting a bit of a wall” when it comes to their financial situation.
“If this continues and the savings dry up… they are likely more inclined to file for bankruptcy or do a consumer proposal to deal with their debt.”
The MNP Consumer Debt Index, a survey conducted by Ipsos which measures Canadians' attitudes towards their debts and their ability to pay their bills, fell to 83 points in the quarter, its second-lowest level in five years. A higher index score means that Canadians feel positive towards their personal finances, while a lower score connotes negative feelings and low confidence. The index, which was launched in June 2017, hit a historical low score of 77 in December 2022. The index peaked at 106 in June 2018.
The growing concern about debt has also taken a toll on Canadians’ mental health. The survey found that 60 per cent of respondents say their financial situation is causing them anxiety, and that 48 per cent say it is causing them to feel a greater sense of isolation.
Higher interest rates have been weighing on consumers as the Bank of Canada continues to try and wrestle inflation back to its two per cent target. The central bank overnight rate is currently at five per cent, the highest level it’s been in 22 years. While economists widely expect that the central bank will begin cutting interest rates later this year, Bank of Canada Governor Tiff Macklem said in an end-of-year speech in December that the central bank needs to see evidence that "inflation is on a sustained downward track" before it can begin discussing cutting its benchmark rate.
Macklem acknowledged in the December speech that “many Canadians are feeling squeezed by higher interest rates.”
“With the cost of living still increasing too quickly, and with growth subdued, the next two to three quarters will be difficult for many,” he said.
“At the Bank, we are doing our best to balance the risks of over- and under-tightening. But if we learned anything from the bitter experience with inflation in the 1970s, the biggest mistake would be to waver in our resolve to control inflation and lose the public’s trust.”
Meanwhile, Bazian says consumer sentiment about one's financial situation should improve when interest rates go down.
“It’s interest rates and inflation that are continuing to gnaw away at people,” he said.
“I think it’s safe to say if interest rates don’t go down and inflation doesn’t go down any further, you’re going to have this situation for a while yet.”
The MNP survey of 2,000 Canadians was conducted by Ipsos between Nov. 28 and Dec. 3 and has an estimated margin of error of +/- 2.5 percentage points, 19 times out of 20.
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.
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