MNP Consumer Debt Index highlights financial upside of pandemic among Canadians

Optimism about debt and personal finances jumps amid relief measures and reduced consumer spending,

CALGARY, AB – July 20, 2020 – While the financial picture for many Canadian households looked bleak last quarter, many have stayed afloat thanks to the current raft of pandemic-related support programs. After reaching a record low in early March, the MNP Consumer Debt Index has climbed three points to 96, with increasing optimism about personal finances.

The quarterly poll, which is conducted by Ipsos on behalf of MNP LTD, found Canadians feel more confident than ever about being able to cover their living expenses for the next 12 months without going further into debt (61%, +3). Compared to pre-pandemic levels, significantly more Canadians rate that their current debt situation as excellent (43%, +5). More than a quarter (27%, +1) perceive their debt situation to be better now than it was a year ago — and over a third (35%, +1) believe it is better now than it was five years ago.

The new-found optimism is also visible in measures showing fewer regret the amount of debt they have taken on in life (44%, -3) and are less concerned about their current level of debt (40%, -6).

“That many Canadians are more optimistic or even hopeful about their personal debt situation is likely a result of the pandemic relief measures. But it could also stem from comparing their own circumstances to what is playing out in other parts of the world,” says Grant Bazian, president of MNP LTD. “Many also found it easier to spend less over the last few months since they were required to stay home.”

With widespread store closures leaving fewer opportunities for spending and many saving on gas and community costs as a result of working from home, Canadians now say they have more wiggle room in their household budgets each month. On average, after paying their bills and debt obligations, they report having $148 more at month-end than they did in early March.

“COVID-19 dramatically altered consumer spending with the closure of restaurants, theatres, malls, and other bastions of discretionary spending. Even with marginal increases in groceries, utilities, and online shopping, many households have reported significant savings. In some cases, this has made them feel more capable of keeping up with previously unsustainable debt payments,” explains Bazian.

The number of Canadians who say they are $200 or less away from financial insolvency at month-end decreased seven points since early March (43%, -6pts). This proportion includes 22 percent who report already being insolvent and not being able to cover their bills and debt payments.

“Even if spending doesn’t immediately return to pre-pandemic levels, it wouldn’t take much to push many households back into dangerous territory. Just a few hundred dollars per month — less than one unexpected car repair or a loss in overtime pay — may be enough to tip the scales toward an insolvency scenario,” says Bazian. “As the economy begins to re-open we should also expect to see a range of efforts from creditors to catch people up. Whether that takes the form of increased monthly payments or extended loan terms, the net result will likely see most households further behind and deeper in debt.”

So far, support from the government, mortgage deferrals, and the flexibility of creditors have all contributed to a significant decline in insolvency filings since the pandemic began. In May alone, consumer filings declined 51 per cent compared to the same month last year.

Given the already shaky ground Canadians were standing on before the COVID-19 crisis — not to mention the magnitude of the virus, its economic impacts, and the government response — Bazian says it won’t be at all surprising to see nationwide insolvencies jump.

“At best, we will likely see these numbers rapidly return to the baseline as federal subsidies and stimulus dollars dry up, creditors begin clawing back deferred payments, and consumers return to pre-pandemic spending levels,” says Bazian.

For those who are struggling with debt, Bazian notes that Bankruptcy is not the first nor is it always the best option. Licensed Insolvency Trustees are the only federally regulated debt professionals empowered to provide a full range of debt relief options including Consumer Proposals, informal debt settlements, and bankruptcies. They take a customized approach and provide an unbiased opinion to help severely indebted individuals understand their rights and determine the best path forward.

“It’s difficult to predict how many Canadians will require some form of debt-relief as a result of COVID-19, but it’s not too much of a leap to say it will likely be as unprecedented as the scope of the pandemic itself,” says Bazian.

Other Poll Findings:

  • Some households are bracing themselves for a crash landing when the current relief measures end and leave them facing an uncertain post-pandemic economy:
    • The number of Canadians who expect their debt situation to improve a year from now has declined (33%, -3) and in fact, one in ten believe it will worsen (11%, +2).
    • Four in ten Canadians say they expect their debt situation to improve five years from now (42%), a decrease of six points from pre-pandemic levels. As with the one-year timespan, one in ten believe their debt situation will worsen (10%, +2).
  • Some groups are proportionately more affected by the pandemic in terms of how much wiggle room they now have at month-end:
    • Women are seeing a smaller bump in average finances left at month-end ($97 vs. $202 for men).
    • Gen Xers are also seeing less of an increase ($78 vs. $325 for Millennials and $134 for Boomers); they are the generation most likely to be in the workforce (as opposed to retired or studying) and have outstanding debt obligations.
    • While the scale of increases varies from Atlantic Canada (+$73) to Alberta (+$387), those in Saskatchewan / Manitoba are the only ones to see an average decrease in money at month-end (-$98).

About MNP LTD

MNP LTD, a division of the national accounting firm MNP LLP, is the largest insolvency practice 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 230 offices from coast-to-coast, MNP helps thousands of Canadians each year who are struggling with an overwhelming amount of debt. Visit MNPdebt.ca to contact a Licensed Insolvency Trustee or use our free Do it Yourself (DIY) debt assessment tools.

In light of the social distancing measures currently in place, MNP LTD is currently offering free consultations via videoconferencing (Skype, Messenger, Zoom, FaceTime, etc.) and by phone. Their team of Licensed Insolvency Trustees are empowered to help those struggling financially to make the most informed choices to deal with their debt during this time. Visit MNPdebt.ca to book an appointment or to start a live chat.

About the Survey

These are some of the findings of an Ipsos poll conducted between June 1-2, 2020, on behalf of MNP LTD. For this survey, a sample of 2,001 Canadians aged 18 years and over was interviewed. 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.

A summary of the provincial data is available by request.