Recent report says 45 percent of adults in Man. and Sask. are $200 away from being unable to meet financial obligations
Nearly half of the adult population in Saskatchewan and Manitoba is struggling to make ends meet, according to a consumer debt report prepared by accounting firm MNP.
The inability of consumers to cover regular bills, buy groceries and service existing debt obligations has become more common in an environment of higher interest rates and inflationary pressure, the report suggests.
According to the MNP Consumer Debt Index released earlier this month, 45 percent of adults in Saskatchewan and Manitoba are just $200 away from being unable to meet their financial obligations and nearly 30 percent are already insolvent.
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More than half of those surveyed in the two provinces said they are bracing for more difficult times ahead.
The MNP Consumer Debt Index measures Canadians’ attitudes toward their debt and gauges their ability to pay bills, handle unexpected expenses and cope with interest-rate fluctuations without approaching insolvency.
The index is updated quarterly and is based on a consumer survey conducted by polling firm Ipsos.
Data collected for the latest quarterly update was gathered in the second week of March 2023.
“Indebted households continue to face inflation as well as sharply higher interest rates on their outstanding debts,” said Pamela Meger, a licensed insolvency trustee with MNP.
“The fact is, there is not much financial wiggle-room in many household budgets, which highlights the impacts of higher interest rates, particularly on those who can least afford them.”
The MNP report said personal finances continue to be a source of significant stress for Saskatchewan and Manitoba residents.
When asked about the impact of Canada’s current economic conditions on their personal finances, 55 percent of respondents in Saskatchewan and Manitoba said they believe that the worst is yet to come.
Another 31 percent believe they are currently experiencing the worst part of the economic cycle and 14 percent said the worst is behind them.
Nearly three in 10 said they already don’t earn enough to cover bills and debt payments.
The average amount of money that households have left over at the end of the month has increased slightly to $776, up $23 from the previous quarter.
According to Meger, prairie residents are feeling some reprieve thanks to interest rates that have stabilized since the beginning of 2023.
On April 12, the Bank of Canada held its key interest rate steady at 4.5 percent. However, governor Tiff Macklem said the central bank is prepared to increase rates again, if necessary, to bring inflation down to the bank’s target of two percent by 2024.
The Bank of Canada hasn’t raised interest rates since late January.
Meanwhile, the country’s inflation rate cooled to 5.2 percent in February and is expected to drop to around three percent by the middle of 2023.
The central bank said household spending in Canada will continue to slow in 2023, thanks to higher consumer debt levels and elevated debt servicing costs.
The proportion of household income spent on covering interest payments will continue to rise in the coming months as more households renew their mortgages, it added.
“We have… for quite a while now talked about high levels of household debt being a vulnerability and it is something we need to watch as the economy adjusts to higher interest rates,” said Bank of Canada senior deputy governor Carolyn Rogers.
Saskatchewan based insolvency trustee Michelle Scheller said consumer and business insolvency filings in Saskatchewan have risen sharply in about the past year.
“We’re definitely seeing an increase in filings,” she said.
“Insolvency filings dropped significantly during the pandemic,” Scheller continued.
“There was government support, there were payment holidays, you could (defer) payments… so there was a lot of relief for individuals.
“But since that has ceased and all of these other economic factors (such as inflation and higher interest rates) have come into play, filings are on the rise again.”
Scheller cited statistics from the federal Office of the Superintendent of Bankruptcy, which showed that consumer bankruptcies and insolvency filings in Saskatchewan rose 30.4 percent on a year-over-year basis during the 12-month period ending Feb. 28, 2023.
That compares to a national increase of 24.8 percent.
During the same 12-month period, small business filings rose 25 percent on a year-over-year basis in Saskatchewan, compared to a national increase of 10 percent.
Scheller said business bankruptcies affected many businesses across all sectors of the economy, although small restaurant and retail operations were particularly hard hit.
On the consumer side, rising credit card debt continues to play a large role in personal insolvencies.
Scheller said it’s becoming more common to see people carrying a high number of credit cards, all of which are carrying maximum balances.
Acquiring credit cards seems easy, Scheller said. And many card holders don’t pay attention to the rate at which interest charges accumulate.
“There just doesn’t seem to be (an effective) check on who can get credit,” she said.
People who were living paycheque to paycheque before simply can’t maintain their debt obligations under the current economic conditions, she added.
“There’s no room for savings. There’s no room for an emergency fund. And if there are unexpected expenses…they just can’t support that so they take on more debt ….”
According to Equifax, total consumer debt in Canada rose to a record $2.36 trillion in the third quarter of 2022 as Canadians leaned more heavily on credit cards to cover month to month expenses.
The $2.36 trillion accounts for all types of consumer debt and represents a 7.3 percent increase versus the same period a year earlier.
In Canada, almost 1.5 million new credit cards were issued in the third quarter of 2022, an increase of 22.5 percent compared to the third quarter of 2021, Equifax added.
Average monthly spending on credit cards was almost $2,447 in the three-month period ending Sept. 30, 2022, up by 17.3 percent compared to the same period a year earlier.
“Credit card demand has risen aggressively after being low for more than a year,” Equifax said in recent news release.
“New card growth was seen across all consumer segments, including sub-prime segments,” added Rebecca Oakes, vice-president of advanced analytics at Equifax Canada.
“Consumers have been making strong payments, but we are starting to see a shift in payment behaviour, especially for credit card revolvers, those who carry a balance on their card and don’t pay it off in full each month.
Despite an uncertain economic outlook, most Saskatchewan and Manitoba residents said they are not concerned about the impact of rising interest rates on their financial situation.
“The results reveal Saskatchewan residents have developed a more positive financial outlook,” Meger said.
“Regardless of your financial outlook, it’s essential for Saskatchewan residents to be proactive about managing the debts they owe,” she added.
“Be diligent in tracking your budget and set aside funds for unexpected expenses such as a car repair or an increase to your debt servicing costs.
Saskatchewan residents struggling to pay bills are advised to seek professional help as soon as possible.
