The Bank of Canada’s rapid interest rate cuts have seemingly not helped Canadians feel much better about their financial pictures as MNP LTD reports a new low in its outlook on personal debt.
The MNP Consumer Debt Index, a broad gauge of how Canadians feel about their ability to pay down debt, reported Monday that 50 per cent of those polled now feel they’re $200 or less away from being unable to pay all their bills and debt obligations in a month.
The insolvency firm’s reading for the final quarter of 2024 is up eight percentage points from the earlier period.
Canadians’ personal debt outlook fell 12 percentage points to just eight points in the most recent quarter. That figure normally floats in the mid-20s and has never been lower in the history of the MNP Debt Index, which launched in 2017.
MNP’s latest findings rely on Ipsos polling of more than 2,000 Canadian adults from Dec. 6 to 17. That means the poll captured some sentiment following the Bank of Canada’s most recent interest rate cut of 50-basis-points on Dec. 11, a move that brought the central bank’s policy rate down to 3.25 per cent.
The Bank of Canada’s benchmark interest rate broadly sets the cost of borrowing across the country, directly affecting variable rates of debt and influencing what many Canadians pay on their mortgages.
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The central bank policy rate started last year at 5.0 per cent and has declined quickly since June, falling 1.75 percentage points.
But Grant Bazian, president of MNP LTD, said in a statement Monday that those rate cuts to date haven’t changed the financial picture for many households.
“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,” Bazian said.
Fewer Canadians now expect their personal debt situation to improve a year from now (27 per cent, down four percentage points), and more respondents said they think things will get worse.
Fear of someone in the household losing their job also rose nine percentage points in the latest poll, now representing 41 per cent of respondents.
And more than half of those polled (51 per cent) said they believed they’ll likely have to go into more debt to cover all their cost of living expenses in the next year.
Bazian said that stress over holiday bills coming due coincides with economic anxiety for many Canadians. The MNP polling shows a growing number of consumers are stressed about their ability to absorb an unexpected cost like a sudden car repair, while a recent TransUnion credit report suggested one in five Canadians plan to take on more debt this year to keep up with costs, mostly via credit cards.
“Less wiggle room leaves households vulnerable to unexpected expenses or the impacts of economic changes,” Bazian said. “For those already living paycheque to paycheque, any financial disruption could quickly escalate into a crisis.”
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