Enjoy the Decline

Getting the economic destruction they voted for:

Canadians are heading into the New Year feeling more pessimistic about their personal finances, despite declining interest rates. The latest MNP Consumer Debt Index, conducted quarterly by Ipsos, dropped a staggering 10 points to 79 points, marking the second-lowest level on record since the Index’s inception in 2017.

Canadians’ personal debt rating has plunged to an all-time low, marking a sharp 12-point decline from the previous quarter. The previous record low was set in December 2022.

“While interest rate cuts last year provided some initial relief from their financial worries, Canadians are starting the New Year with holiday bills arriving and a more pessimistic view of their finances,” says Grant Bazian, president of MNP LTD, the country’s largest insolvency firm.

Fewer Canadians this quarter expect their debt situation to improve one year from now (27%, -4pts), while a growing number anticipate it will worsen (19%, +7pts). Alongside this, job anxiety has reached an all-time high, with two in five (41%, +9pts) worried someone in their household could lose their job. Moreover, half of Canadians (51%, +5pts) believe they will not be able to cover all of their living and family expenses in the next 12 months without going further into debt.

Half of respondents (50%, +8pts) say they are are $200 or less away from being unable to pay their monthly bills and debt payments. Women (55%, +4pts) are more likely than men (44%, +13pts) to be $200 or less away from insolvency. One-third of respondents say they are already insolvent (35%, +9pts).

“Many Canadians are already tightening their finances, reassessing budgets, and exploring cost-cutting measures to manage rising living costs or debt repayment. Unfortunately, in some cases, even substantial sacrifices may fall short of providing meaningful financial relief even in the lower interest rate environment,” says Bazian.

Despite consecutive interest rate cuts in 2024, Canadians’ attitudes towards their finances and interest rates have worsened this quarter. Half of Canadians (50%, +2pts) are still concerned about their ability to repay their debts, even if interest rates decline. Nearly half (46%, +4pts) are concerned that rising interest rates could move them towards bankruptcy, while two-thirds (65%, +2pts) say they desperately need interest rates to go down.

This quarter, Canadians have on average $790 left over at the end of the month, which is $147 less than during the previous survey.

“Less wiggle room leaves households vulnerable to unexpected expenses or the impacts of economic changes,” explains Bazian. “For those already living paycheck to paycheck, any financial disruption could quickly escalate into a crisis.”

As financial pressures mount, Canadians’ ability to absorb an extra $130 in interest rate increases has deteriorated. Fewer Canadians this quarter (17%, -5pts) feel much better equipped to handle such an increase than they used to be, while more (37%, +4pts) report being much worse off.

The possibility of unexpected expenses or life changes also weighs heavily on Canadians, with one-third (33%, +7pts) expressing a lack of confidence in their ability to cope with an unexpected auto repair or purchase, and nearly two in five (38%, +6pts) indicating they are not confident in their ability to cope with a job loss or change in wages or seasonal work.