Canadians' financial stress ramping up despite interest rate cuts: insolvency firm

A magnifying glass enlarges the holographic image of Parliament Hill's Peace Tower on a $20 bill issued by the Bank of Canada, shown in a display case at the Bank of Canada Museum in Ottawa, on Wednesday, Sept. 4, 2024. THE CANADIAN PRESS/Justin Tang

Half of Canadians are $200 or less away from being unable to cover their monthly bills and debt payments, according to MNP Ltd.'s quarterly report on consumer debt.

"Despite interest rates decreasing, people are still concerned,"said Grant Bazian, president of insolvency firm MNP.

The survey, conducted by Ipsos, found fewer Canadians expect their debt situation to improve in the coming year while a growing number believe it will worsen. More than half say they don't think they will be able to cover all their living and family expenses in the next year without accruing more debt.

MNP's Consumer Debt Index, which measures Canadians' attitudes toward their debt and their ability to pay their bills,dropped to the second-lowest level since it began tracking in 2017. Meanwhile, Canadians' personal debt rating hit an all-time low. A third of respondents said they are insolvent, with women more likely than men to be $200 or less away from insolvency.

"I think that they just have so much debt and it's just becoming harder to service," said Bazian.

"Canada is one of the highest of all the Western nations in the world for the debt ratio ... the volume of the debt is catching up to people," he added.

Canadians are also feeling job anxiety, with two in five respondents worried someone in their household could lose their job. Bazian said that figure is the highest it's been in the history of this report.

The overall trend in Canada's unemployment rate has been steadily rising. Despite a slight dip in December to 6.7 per cent, according to Statistics Canada, unemployment is still elevated.

Bazian said people's perception of their financial situation is usually based on what's immediately pressuring them.

"People react to what's happening now as opposed to what's happening in the future."

While economic indicators or interest rate changes take a bit of time to show their effects in daily life, Bazian said they can still also affect consumers' perceptions of how they are faring financially.

Despite declining interest rates, Canadians' disposable income is still shrinking and many feel unprepared to handle a potential unexpected big financial event, such as a car repair or purchase, or a job loss.

"We're still having a growing number of people anticipating that their financial situation will worsen, that they're going to have a harder time paying off their debt in the future," said Bazian.

The financial cushion for Canadians is also shrinking. Respondents said they have on average almost 16 per cent less disposable income left over at the end of the month compared with last quarter.

The Bank of Canada has cut its key interest rate significantly from recent highs -- the rate now sits at 3.25 per cent after five cuts last year down from five per cent. It's expected to continue lowering rates this year.

"We're still seeing a lot of people concerned about interest rates being where they are," said Bazian.

The survey was conducted between Dec. 6 and 17, with a sample of 2,003 Canadians.

This report by The Canadian Press was first published Jan. 13, 2025.