Consumer Cannon Fodder

Good news for long abused savers while long favoured debtors are nudged a little closer to the precipice. It appears overindebted Canadian consumers can now officially consider themselves nothing but cannon fodder at the Bank of Canada.

Governor Stephen Poloz and his deputies on the Governing Council raised the benchmark interest rate a quarter-point to 1.75 per cent today, as expected.

They said they feel pretty good about the economy, now that politicians in Canada, Mexico, and the United States have agreed on a revised trade agreement, and that evidence suggests Canadian households are adjusting well to higher borrowing costs. Policy makers raised their outlook for business investment and exports, suggesting the economy is becoming less reliant on debt-fuelled spending and the housing market.

To back up our opening statement above our friends at MNP Ltd. (the largest insolvency practice in Canada) just released the following yesterday:

Fear of rate hikes continues to intensify among Canadians

According to a recent Ipsos poll conducted by MNP LTD., Canadians continue to fear increasing financial turbulence as the prospect of another interest rate hike looms. The most recent MNP Consumer Debt Index indicates debt anxiety has intensified over recent months, as one in three people across the country worry rising interest rates could move them towards bankruptcy – up six percent since June. More than half of Canadians (52%, up 3%) are concerned about whether they will be able to afford their debts as rates climb. And, with a seven percent jump, the number of people who say they’re feeling the effects of previous rate increases is now more than two in five (45%) – while the same number (45%) admit future increases could place them in financial trouble.
It appears younger Canadians are feeling the brunt of the growing rate uncertainty, as nearly two thirds of millennials (63%) aged 18-34 say they worry about the impact on their debt repayment – versus three in five gen x’ers (62%) and two in five Baby Boomers (40%). They’re also the most likely to say they’ve felt the effects of previous interest rate increases (half of millennials contrasted with 48% of gen x’ers and 38% of Baby Boomers).
It’s now been a year since the first interest rate increase in nearly a decade. As the effects have had time to soak in, more people are feeling the pinch. The MNP Consumer Debt Index hit a record high in June 2018, but it has fallen three points over the past quarter to its current score of 103. This suggests that while attitudes and experiences of debt have improved modestly, Canadian debtors have yet to find calmer waters.
In fact, the data shows that if household debt doesn’t begin to drop, the increasing pace of rate increases will continue to tighten the grip on consumer finances. Of particular concern is there’s an entire generation of Canadians who never experienced a higher rate environment. They’re not used to navigating expensive debt or negotiating unexpected costs with anything other than credit.
Despite the downward trend, however, there may still be cause for optimism. Eight in ten (79%) Canadians resolve to counter rising interest rates with more cautious spending habits. This is perhaps what fuels a positive outlook – with three in ten (28%) saying their debt situation has improved over the past year, four in ten (39%) saying they expect their debt situation to be even better in a year’s time and half (50%) saying things will improve within the next five years.
With more than two in five (43%) admitting they regret how much debt they’ve taken on in their lives, it’s good to see that rising interest rates have caused Canadians to take a more critical view of their debt and spending habits. However, many are still reluctant to seek professional help to manage their situations. Whether they don’t know that it’s available, don’t realize they qualify or may fear the consequences – it’s important to understand that there are a great many opportunities to rebuild their finances and get the financial fresh start they deserve.

Other poll highlights include:

• Atlantic Canadians show the most trepidation towards increasing interest rates. Sixty-five per cent of Atlantic Canadians say that as interest rates rise, they are becoming more concerned about their ability to repay their debts– ahead of those in Alberta (55%), Saskatchewan and Manitoba (53%), Ontario (52%), and BC and Quebec (both 48%).

• Atlantic Canadians are most likely to state with rising interest rates they will be more careful with how they spend their money (87%), followed by Saskatchewan and Manitoba (86%), Ontario (83%), Alberta (77%), British Columbia (76%) and Quebec (72%).

• Concern about rising interest rates triggering a move toward bankruptcy is more pronounced in Atlantic Canada (39%), followed by Alberta, Quebec and Ontario (both 34%), British Columbia (33%), and Saskatchewan and Manitoba (31%).

• Canadians remain more positive than negative towards their debt situation, as nearly three in ten (28%) rate their current debt situation better than a year ago, and more than one in three (35%) say their debt situation has improved when compared to 5 years prior. Canadians also continue to be hopeful about the future, with four in ten (39%) Canadians believing their expected debt situation a year from now will improve, and half expect their situation to improve within the next 5 years.

• Albertans (20%) are most likely to say their current debt situation is worse, followed by residents of Atlantic Canada (17%), Saskatchewan and Manitoba (15%), Ontario (13%), Quebec (10%), and British Columbia (8%).

• Quebec residents (49%) are most likely to rate their personal debt situation as good, followed by residents British Columbia (45%), Ontario (38%), Saskatchewan and Manitoba (34%), Alberta (33%) and Atlantic Canada (28%).

This MNP Ltd article originally appeared at: https://mnpdebt.ca/en/blog/fear-of-rate-hikes-continues-to-intensify-among-Canadians