Increasing Optimism Among Indebted Canadians Drives Mnp Consumer Debt Index To Record High

According to a recent Ipsos poll conducted by MNP LTD., Canadians are forecasting sunnier skies ahead when it comes to their debt. Bolstered by three in five Canadians (61%) feeling their debt situation has improved over the past four months, the MNP Consumer Debt Index jumped 10 points in July to reach its highest recorded score. With one quarter (25%) of Canadians saying their debt is better now than one year ago — and more than half (57%) saying it’s the best it’s been in five years — there seems to be a renewed sense of confidence that the worst is finally behind them.

Perhaps surprisingly, that optimism holds true even with further interest rate increases on the horizon. When asked about their ability to tolerate additional monthly debt payments of either 1% or $100, a growing number of people believe they could. Further, those who worry future interest rate increases would push them toward bankruptcy has also reduced by 5% (28%). However, two in five (42%) remain concerned that subsequent rate hikes could put their finances jeopardy.

This raises questions about the validity of such a sanguine outlook and concerns that it may be lulling Canadian debtholders into a false sense of security. Especially considering there’s still a long way to go before many people are out of the woods. Thankfully, the number of debtors who are $200 or less from financial insolvency has been steadily declining since January. But even with a 2% drop this quarter, that still totals two-fifths (42%) of Canadians — including more than one in four (27%) who have absolutely no wiggle room at the end of the month, also down 2%.

A recent decrease in the household debt ratio as reported by Stats Canada — the largest on record — appears to correlate with new mortgage rules and higher interest rates slowing the pace of borrowing. While these factors will help to prevent the situation from getting much worse, it’s important to remember that Canadians still owe an incredible $599 billion on credit cards and other non-mortgage consumer debt. The only way to justify enduring optimism over the long term is to significantly cut that figure.

Perhaps the most valuable lesson from the survey is that it’s possible to make a meaningful impact on debt, even within a short timeframe. Half of those polled (52%) said they were able to reduce their credit burden by cutting down on variable expenses such as dining out, entertainment and coffee. More than two in five (43%) credited adhering to and frequently updating their budget for improving their financial situation, while a quarter (28%) found ways to lessen their fixed expenses such as housing costs and car payments. One-third supplemented their income either by downsizing their possessions (23%) or taking on additional work (11%).

It’s important to consider, however, that these incremental methods are likely not sufficient for households already struggling to make ends meet. While only 6% of respondents reached out for professional debt help, that is often the fastest and most effective way to get the financial fresh start many Canadians need right now.

Other poll highlights include:

• Four in ten Canadians (41%) rate their debt situation as excellent, up 5 points since March.Regionally, British Columbians (47%) are most likely to rate their personal debt situation as excellent, followed by Atlantic Canada (46%), Quebec (44%), Ontario (41%), Alberta (36%), and Saskatchewan and Manitoba (30%). There is also a generational divide, as Boomers (49%) are more likely to rate their debt situation as excellent compared to 37% of Millennials and Gen Xers.
• Fewer Canadians say they are already beginning to feel the effects of interest rate increases (38%, down 5 points), while more now say they have a solid understanding of how interest rate increases impact their financial situation (78%, up 4 points). Less than half of Canadians (47%, up 1 point) express concern toward the impacts rising interest rates could have on their financial situation.
• While concern over interest rates have softened, a majority (77%) continue to brace themselves for the possibility of an increase and agree that they will be more careful with how they spend their money.
• Overall concern about rising interest rates have decreased since March, with fewer Canadians concerned about moving towards bankruptcy (28%, down 5 points), repaying their debts (49%, down 2 points), and being put into financial trouble (42%, down 2 points) if interest rates rise.
• Overall, Canadians are gaining confidence in their ability to cope with unexpected life changes without taking on more debt. That includes: being able to cope with an unexpected auto repair or purchase (35%, up 7 points), a change in relationship status (36%, up 4 points), and paying for their own or someone else’s education (28%, up 4 points).
• Looking to the future, Canadians are far more optimistic: one year from now, 38 per cent of Canadians expect their debt situation to be better, while nine per cent expect it to be worse, giving a net 29 per cent score, the highest since tracking began. Five years from now, half (50%) of Canadians think their personal debt situation will be better and only eight per cent think it will be worse. The net score has increased 5 points since March (37% to 42%) and 4 points since December (38% to 42%), also the highest since tracking began.
• Though things may be looking up for some, half (50%) of Canadians are not confident that they will not have any debt in retirement.

About MNP Debt

MNP LTD, a division of MNP LLP, is one of the largest personal insolvency practices in Canada. For more than 50 years, our experienced team of Licensed Insolvency Trustees and advisors have been working with individuals to help them recover from times of financial distress and regain control of their finances. With more than 220 230 Canadian offices from coast-to-coast, MNP helps thousands of Canadians each year who are struggling with an overwhelming amount of debt. Visit www.MNPdebt.ca to contact a Licensed Insolvency Trustee or get a free checkup for your debt health using the MNP Debt Scale.

About the MNP Consumer Debt Index

The MNP Consumer Debt Index measures Canadians’ attitudes toward their consumer debt and gauges their ability to pay their bills, endure unexpected expenses, follow a budget, and absorb interest-rate fluctuations without approaching insolvency. Conducted by Ipsos and updated quarterly, the Index is an industry-leading barometer of financial pressure or relief among Canadians. Visit www.MNPdebt.ca/CDI to learn more. The latest Index data was compiled by Ipsos on behalf of MNP LTD between June 15 and June 19, 2018. For this survey, a sample of 2,001 Canadians from the Ipsos I-Say panel was interviewed online. The precision of online polls is measured using a credibility interval. In this case, the results are accurate to within +/- 2.5 percentage points, 19 times out of 20, of what the results would have been had all Canadian adults been polled. Credibility intervals are wider among subsets of the population. This represents the fifth wave of the MNP Consumer Debt Index. To learn more about the survey and how MNP can help you manage your debt challenges, contactGrant Bazian, CIRP, LIT, President, MNP Ltd., at 1.877.363.3437 [email protected]