Debt-Burdened Canadians Already Feeling The Pinch Of Higher Interest Rates

2017-10-23   minute read

Grant Bazian

MNP Consumer Debt Index

According to a recent Ipsos poll conducted by MNP LTD., the increased cost of borrowing due to rising interest rates is causing many Canadians to re-evaluate their relationship with debt. Seven in 10 people who responded to the survey say higher interest rates will cause them to think twice about how they spend their money, while four in 10 admit they will be in financial trouble if rates go up much further. One in three say they’ve already felt the effects of increases that took place in July and September.

Compared to previous survey results, the average household now has $149 less at the end of the month after bill and debt payments than they did in June. With more than two in five (42%) households already within $200 of not being able to pay their bills, almost one third (28%) worry future increases could push them toward bankruptcy.

Concerningly, the results indicate that while Canadians are going to be stressed by more expensive debt, their debt burden will likely get worse rather than better over the foreseeable future. When presented with six unpredictable scenarios, only a small percentage believed they could deal with them without taking on more debt. In fact, almost two thirds (58%) expect to take on more debt over the next year just to cover basic living and family expenses.

The issue here isn’t just the cost of debt increasing. Instead it is a combination of people not earning enough to finance their lifestyles and not having enough emergency savings to cover unexpected costs – instead using inexpensive credit to get them through. Now that the cost to service that debt is increasing, many who were already overextended to begin with are finding themselves unable to make ends meet.

The survey also uncovered how a lack of financial literacy has pushed many households into difficult situations they may not be able to recover from. Seven in 10 people responded they believe they have a solid understanding of how interest rate increases impact their financial situation, but opinions differed when respondents were asked both how they could tolerate either a one percent interest rate increase or an additional $130 in monthly interest payments. Though both represent the same value, opinions were marginally favourable about the one percent increase, yet equally negative about the dollar value. This indicates many people hesitate to make important changes until they see tangible consequences. However, by then it’s often after it’s too late.

Are you worried about rising interest rates and your ability to cope? We've created an online tool to evaluate your current debt health. Your results on the MNP Debt Scale will help you decide whether a Life-Changing Debt Solution may be right for you.

Other key poll highlights included:

  • Compared to other age groups, millennials are the most likely to be feeling the effects of interest-rate increases (40%). They are also the most concerned about the potential negative effects that rising interest rates will have on their financial situation (49%). In fact, four in 10 (38%) Millennials express concern that rising interest rates could move them towards bankruptcy, more so than Gen Xers (30%) and Boomers (18%). Millennials are also the least likely of their counterparts to say they have a solid understanding of how interest rate increases impact their financial state.
  • Lower income earning Canadians express the most concern towards rising interest rates.
  • Homeowners are slightly more optimistic that they will have the capacity to absorb an interest rate increase of 1 percentage point or an additional $130 in interest payments on debt.
  • The prospect of rising interest rates is prompting more concern in some parts of Canada than others. Fifty-five per cent of Albertans say that if interest rates rise, they’ll be more concerned about their ability to repay their debts– ahead of those in BC and Quebec (47%), Saskatchewan and Manitoba and Atlantic Canada (45%), and Ontario (44%).
  • Concern about rising interest rates triggering a move toward bankruptcy is significantly more pronounced in Alberta (37%), followed by Quebec (34%), Atlantic Canada (32%), Saskatchewan and Manitoba and Ontario (23%), and B.C. (22%).
  • Only a minority of Canadians are confident that they wouldn’t incur more debt if faced with a change in their relationship status like a divorce (33%), unexpected auto repairs or purchase (31%), having to take three months off work due to illness (30%), a job loss or wage decrease (28%), a death in the family (27%), or paying for someone’s education (26%).

About the MNP Consumer Debt Index

These are some of the findings of an Ipsos poll conducted between September 18 and September 21, 2017, on behalf of MNP Debt. For this survey, a sample of 2,005 Canadians aged 18+ from Ipsos' online panel was interviewed online. Weighting was then employed to balance demographics to ensure that the sample's composition reflects that of the adult population according to Census data and to provide results intended to approximate the sample universe. The precision of Ipsos online polls is measured using a credibility interval. In this case, the poll is accurate to within ±2.5 percentage points, 19 times out of 20, had all Canadian adults been polled. The credibility interval will be wider among subsets of the population. All sample surveys and polls may be subject to other sources of error, including, but not limited to coverage error, and measurement error. This represents the second wave of the MNP Consumer Debt Index.

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