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Nearly half of Canadians on the brink of insolvency: MNP survey

Wide angle image depicting a senior man's hand holding an energy bill while the other hand checks the numbers on a calculator. The table is strewn with documents and also a laptop. Room for copy space.
46 per cent of Canadians find themselves closer to insolvency, the MNP survey found. (Getty Images)

Canadians are finding it more difficult to pay for food, housing and transportation and nearly half are on the brink of insolvency as rising interest rates and soaring inflation continue to weigh on household budgets.

That's according to MNP's quarterly Consumer Debt Index released on Monday. The survey, which is conducted by Ipsos and tracks Canadians' attitudes towards their debt situation, found that 52 per cent of respondents say it is becoming less affordable to feed themselves and their families, an increase of five percentage points from December 2021.

It also found that 45 per cent of respondents say it's becoming less affordable to pay for transportation, up nine percentage points from last year, and another 45 per cent say it is becoming more difficult to pay for clothing and other household necessities, an increase of five percentage points from last year. Paying for housing is also a challenge for many Canadians, with 37 per cent saying it is becoming less affordable (up two percentage points).

At the same time, Canadians are finding it more difficult to save. The survey found that 49 per cent say it's becoming less affordable to put money aside for savings, up five percentage points from last year.

"Canadians are putting more of their paychecks towards paying for basic necessities as the cost of living rises, which in turn is leaving less of a financial buffer to manage the impacts of current and potential future interest rate hikes," Grant Bazian, president of MNP, said in a statement.

The MNP Consumer Debt Index also found that 46 per cent of Canadians find themselves closer to insolvency – defined as being $200 or less away from being unable to meet their financial obligations – a six percentage point improvement from the previous quarter. However, with the cost of necessities soaring in recent months, the average Canadian now has less money overall to spend at the end of the month, dropping $37 from the previous quarter to $654. Younger Canadians between the ages of 18 and 34 saw the biggest decrease in their average month-end finances, falling $273 to $606.

"With less overall room in their budgets, any future increases to interest rates or the prices of everyday items could push individuals closer to insolvency," Bazian said.

"Younger Canadians are feeling the squeeze of inflation more than the rest, and will be more vulnerable to economic changes as a result."

Canada's inflation rate hit 7 per cent in August, a slowdown from the nearly four-decade highs reached in previous months, but still well above the Bank of Canada's target of two per cent. While some categories saw growth slow, food purchased from grocery stores increased 10.8 per cent, the fastest rate in 41 years.

The jump in prices has forced many Canadians to cut back on groceries and entertainment, according to a Yahoo/Maru Public Opinion poll. The survey, which was conducted in the summer, found that 60 per cent of Canadians set stricter priorities and reduced spending due to skyrocketing prices.

In response to red-hot inflation, the Bank of Canada has embarked on an aggressive tightening cycle, hiking its benchmark rate by 300 basis points since March to bring it to 3.25 per cent.

The rate increase is being felt most by lower-income Canadians, according to MNP. The survey found that 62 per cent of those making less than $40,000 a year are feeling the effects of interest rate increases and 44 per cent say interest rate hikes are pushing them closer to bankruptcy. For those making over $100,000 a year, 55 per cent are feeling the effects of interest rate increases and 29 per cent say interest rate hikes are pushing them closer to bankruptcy.

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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