Financial stress grows for Canadians despite lower interest rates – report

What fuels this ongoing financial distress?

Financial stress grows for Canadians despite lower interest rates – report

A growing number of Canadians are grappling with financial stress despite a series of interest rate cuts from the Bank of Canada, according to a new report from MNP Ltd. Half of Canadians are $200 or less away from being unable to meet their monthly bills and debt obligations, a report from CP24.com highlighted.

“Despite interest rates decreasing, people are still concerned,” said Grant Bazian, president of MNP, an insolvency firm in an interview with CP24.com. The findings are part of MNP’s quarterly Consumer Debt Index, which gauges Canadians’ attitudes toward debt and financial security.

Shrinking financial cushion

The survey, conducted by Ipsos, revealed a steep decline in Canadians’ financial confidence. More than half of respondents expressed doubt about covering living and family expenses in the coming year without incurring additional debt. A third reported being insolvent, with women disproportionately affected, more likely than men to report being on the brink of insolvency.

Respondents also reported having, on average, 16% less disposable income at the end of the month compared to the previous quarter, further eroding their financial cushion.

Bazian highlighted that people are feeling the pressure of their debt burden, and it’s becoming increasingly difficult to manage. He added that Canada’s debt-to-income ratio is among the highest in Western nations. “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 said.

Economic anxiety on the rise

The report noted a growing sense of job insecurity, with two in five Canadians fearing someone in their household could lose their job. Bazian emphasized that this level of concern is unprecedented in the history of MNP’s reporting. Although Statistics Canada reported a slight drop in the unemployment rate to 6.7% in December, the overall trend has been a gradual rise in unemployment, fuelling anxiety.

“People react to what’s happening now as opposed to what’s happening in the future,” Bazian said.

Debt challenges persist despite rate cuts

The Bank of Canada has reduced its key interest rate five times over the past year, bringing it down to 3.25% from 5%. Further cuts are anticipated in 2025. However, the lower rates have not translated into immediate relief for many Canadians.

Bazian said economic indicators or interest rate changes take some time to show their effects in daily life. He noted these can also impact consumers’ perceptions of how they are faring financially. Even with the lower rates, many Canadians feel unprepared for unexpected financial challenges with their disposable income still shrinking. This includes unanticipated expenses such as car repairs or job losses.

“We’re still having a growing number of people anticipating that their financial situation will worsen,” said Bazian. “We’re still seeing a lot of people concerned about interest rates being where they are.”

The survey, conducted from December 6-17, polled 2,003 Canadians.

Any thoughts on this story? Let us know in the comments below.