Jul 20, 2020
Canadian consumer debt fears ease amid COVID-19 aid, survey finds
Consumer debt fears ease amid COVID aid, survey finds
Chief Financial Commentator, CTV
Could this be the calm before the financial storm?
At the start of the COVID-19 pandemic, the financial situation for many families was pretty bleak. Looking back to March when the last quarterly MNP Consumer Debt Index was released, consumer debt fears hit a record high, as people who were already on shaky financial ground feared the pandemic, compounded with climbing debt levels and the fear of job loss, could push them into bankruptcy.
However, that was then and this is now.
The latest MNP Ltd. poll published Monday reveals that after the various forms of government support, some who were previously struggling now have a feeling of optimism. Canadians are more confident compared to the previous survey about being able to cover living expenses for the next 12 months without going further into debt (61 per cent, up three points). A larger number of Canadians see surveyed said they'd rate their current debt situation as "excellent" (41 per cent, up five points) compared to pre-pandemic levels.
Interesting to note that fewer people regret the amount of debt they have taken on in life (44 per cent, down 3 points), while fewer people are concerned about their current debt level (40 per cent, down six points).
Over 25 per cent surveyed perceive their financial situation to be better now than it was a year ago and over one-third believe it is better than it was five years ago.
I want to be encouraged, but I'm skeptical the picture isn’t as rosy as some think.
The reality is many are feeling some financial relief due to the government programs and less opportunities to spend money. With widespread closures, less driving and savings on gas, and even cooking more, Canadians have created some financial wiggle room in their lives.
“Even with marginal increases in groceries, utilities and online shopping, many households have reported significant savings which, in some cases, have made them feel more capable of keeping up with previously unsustainable debt payments,” Grant Bazian, president of MNP, said in a release.
The number of Canadians who say they are $200 or less away from financial insolvency also decreased by six points to 43 per cent, according to the survey.
This all sounds like a good-news scenario but the fear has to be: Will there be a crash landing when the current government relief measures are discontinued? The government subsidies will come to an end, creditors will come calling and mortgage deferrals will unlikely be ongoing.
And I hope I'm wrong, but layoffs could be a reality come the fall. Households have had a reduced revenue stream and so have businesses. Companies are also right now adjusting their spending to reflect their current new reality. And that may mean fewer employees.
Now is the time – like businesses – to adjust your spending.
The discipline of less spending comes from a personal decision to consume less. Once economies reopen, temptation may trump logic and discretionary spending could return with a vengeance if we aren't careful.