Six in ten Canadians are at risk of taking on more debt before the end of the year, including one in five who will use “buy now, pay later” options
MNP Consumer Debt Index – October 2021
Low interest rates and rising costs are pushing many Canadians down an increasingly risky path to borrow more.
CALGARY, Alta., Oct. 04, 2021 (GLOBE NEWSWIRE) – MNP’s latest consumer debt index raises red flags about Canadians’ plans to borrow more – and potentially riskier ways – to join make ends meet or fund their buying habits over the next few months.
Six in ten (58%) are at least somewhat likely to borrow more before the end of this year, including nearly four in ten (37%) who say they are inclined to spend with a credit card that already carries a balance. ‘Buy now, pay later’ (BNPL) options, which have exploded alongside the surge in online shopping and financial instability caused by the pandemic, will likely be the payment method for one in five Canadians (22 %) this autumn. About the same number (22%) are considering purchase finance options and 15% say they are likely to apply for a new credit card. In addition, one in ten (9%) is considering a personal loan.
“Buy now, pay later” options, payday loans and credit cards are especially attractive to those with tight finances, but payment terms, fees and interest are grossly underestimated or badly understood, ”says Grant Bazian, president of MNP LTD., the country’s largest personal insolvency firm. He warns Canadians against the lure of borrowing more thanks to quick credit options and BNPL offers increasingly touted by online retailers.
“Retail incentives that offer the instant gratification of buying goods now and paying later are not always good value for consumers,” he cautions. “What Canadians need to remember is that these credit options benefit lenders plus people stay in debt longer due to high interest charges and various processing fees and / or late payments.
The low interest rates have made Canadians feel more comfortable taking on more debt. Notably, half (49%) say that with interest rates so low, they are more relaxed than they usually are to take on debt, up four points from the last quarter. Additionally, six in ten respondents (58%) say low interest rates give them a good opportunity to buy things they might not otherwise be able to afford.
Perhaps drawn to the possibility of making purchases that might otherwise be beyond their means, young people are more likely to use BNPL options, with four in ten (38%) of Gen Z and three in ten (27 %) of Millennials planning to do so before the end of the year. Generation Z and Millennials are also much more likely to say they are at least somewhat likely to use a payday loan service (24% and 13% respectively).
But Canadians also know that the low-interest gravy train has to end at some point. With almost half (46%, -2 pts) saying they are $ 200 or less not being able to meet all of their financial obligations, including 27% (-3 pts) who say they won’t be able to meet all of their financial obligations. are already not earning enough to cover their bills and debt repayments, it is not surprising that the majority (52%, + 2pts) are worried about the impact of rising interest rates on their financial situation. One in three people (35%, + 1pt) fear that rising interest rates could push them into bankruptcy.
“Debt can be a useful tool, but every time you borrow you are taking a financial risk. Increases in interest rates, unexpected loss of income, emergency expenses or life-changing events are all potential outcomes that can make paying down debt nearly impossible, ”says Bazian.
With the uncertainty brought by the fourth wave of COVID-19, Canadians are expressing some concern about their ability to cope with life changes without increasing their debt load. Many say they could not financially cope with an unforeseen car repair (21%, unchanged) or that they are sick and unable to work (28%, +1 pt). Three in ten (30%, + 3pts) express a lack of confidence in their ability to cope financially with a job loss or a change of job without going into debt.
“In addition to the unexpected financial turmoil caused by the pandemic, another issue we see playing out in our research is that households are increasingly grappling with the rising cost of living. With the increase in the price of basic necessities, some may take more credit to make ends meet while others will have less room in the budget for debt repayment, ”says Bazian.
Affordability issues are prevalent across the country, with many believing that basic necessities have become less affordable over the past year. Forty-five percent say it is becoming increasingly less affordable to feed themselves and their families. One in three people say housing costs are less affordable, and about the same number (36%) say clothing or household necessities and transportation (33%) are more expensive. More Canadians are also saying that it is becoming increasingly less affordable for them to put money aside to save (40%) or to put money in debt (29%).
“Unmanageable debt is stressful enough on its own, but when there is already virtually no wiggle room in the household budget and the cost of living increases, people can start to feel hopeless. Anyone in this situation should know that professional help is available. Licensed Insolvency Trustees are qualified professionals specially trained to get you out of debt. The sooner you hold your hand, the sooner you will find relief from financial stress and the sooner you can start working towards a new financial start for you and your family, ”says Bazian.
Every Canadian can get a free and confidential assessment of their financial situation with a Licensed Insolvency Trustee. As the only government regulated debt professionals, they offer a full range of debt relief options, including consumer proposals, informal debt settlements, and bankruptcies.
Now in its eighteenth wave and conducted quarterly by Ipsos, the MNP Consumer Debt index currently stands at 95 points, down two points from the last wave conducted in June 2021.
About MNP LTD
MNP LTD, a division of the national accounting firm MNP LLP, is the largest insolvency firm in Canada. For over 50 years, our experienced team of Licensed Insolvency Trustees and Advisors have worked with individuals to help them recover from times of financial distress and regain control of their finances. With more than 240 Canadian offices from coast to coast, MNP helps thousands of Canadians with an overwhelming amount of debt each year. Visit DebtMNP.ca to contact a Licensed Insolvency Trustee or use our DIY Debt Assessment Tools. For regular and in-depth information on debt and personal finance, subscribe to the MNP’s 3-Minute Debt Podcast.
About the MNP Consumer Debt Index
The MNP Consumer Debt Index measures the attitudes of Canadians towards their consumer debt and assesses their ability to pay their bills, incur unforeseen expenses and absorb fluctuations in interest rates without approaching insolvency. Led by Ipsos and updated quarterly, the Index is an industry leading barometer of financial pressure or relief among Canadians.
Led quarterly by Ipsos, the Index has fallen 2 points since last quarter to 95 points, consistently remaining below the benchmark set of 100 points over the past two years.
The latest data, representing the eighteenth wave of the MNP consumer debt index, was compiled by Ipsos on behalf of MNP LTD between September 3 and 7, 2021. For this survey, a sample of 2,001 Canadians aged 18 and over was interviewed. The weighting was then used to balance the demographics to ensure that the composition of the sample reflects that of the adult population according to census data and to provide results intended to approximate the universe of the sample. The accuracy of Ipsos online surveys is measured using a credibility interval. In this case, the survey is accurate to ± 2.5 percentage points, 19 times out of 20, if all Canadian adults had been surveyed. The credibility interval will be wider among subsets of the population. All polls and polls may be subject to other sources of error, including, but not limited to, coverage error and measurement error.
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