Debt reckoning looms

A new MNP debt index survey shows 53 per cent of Canadians on the brink of insolvency

CANADIANS ARE EXPERIENCING new levels of financial precarity as pandemic aid ends, with over half (53 per cent) saying they are within $200 of insolvency.

According to the quarterly MNP Consumer Debt Index, the number of Canadians hovering around financial insolvency is at a five-year high, and it’s getting worse — the latest survey found a 10-point jump in this figure just since December.

“The number of Canadians with virtually no wiggle room in their household budgets has reached a five-year high,” says Grant Bazian, president of the insolvency firm MNP, which sponsored the study. “The anxiety Canadians are feeling about making ends meet ― or already being unable to do so ― tells us we may eventually see an avalanche of households falling behind on payments or defaulting on loans, mortgages, car payments or credit cards.”

The report found that on average, Canadians are only able to save $625 every month, down by $108 from the previous study. “The decline is likely a reflection of the government aid programs, eviction bans and debt holidays given by lenders that are now coming to an end,” the study found.

It may not really seem like it right now, but the end of the pandemic is in sight, and mounting economic insecurity — some of it baked in before the pandemic, some of it new — is emerging as a pressing problem.

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“It’s not really unexpected,” says London-based MNP trustee, Melanie Fuller. “We were all not expecting the file volume of insolvencies to drop for the last year the way they did, but as government aid comes to an end, people are getting fearful that they won’t be able to meet their debt.”

Low- and moderate-income households, where consumer debt is most prevalent, now face economic headwinds as the country starts to look towards the inevitable economic recovery — dwindling government supports, historically stagnant wages and rising cost of living.

Some have called on the government to look at ways they can help alleviate some of these debt concerns. Prosper Canada, an economic-focused charity organization, released a report in November highlighting this issue and calling on the government to take a more active role in the issue.

“We have seen the savings rates of Canadians plunge and their debt rise to historic levels over the past 30 years,” that report found.

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“Canada lags peer nations like Australia, New Zealand and the United Kingdom in ensuring vulnerable households have access to free, quality, financial help to deal with money and debt problems,” said Elizabeth Mulholland, CEO of Prosper Canada, back in November. “Canada has the necessary organizations, expertise and suitable programs we can quickly scale up to help those who are struggling – but only if our governments make the necessary public investments.”

Fuller echoed the sentiment that access to financial guidance can make a big difference, and noted that trustees are available free of cost, since they are appointed by the government.

“The Bankruptcy and Insolvency Act is in place to help honest but unfortunate debtors get a fresh start,” she says. “People should not be embarrassed or ashamed, we are in unprecedented times. People should feel free to access the help that is available to them.” Kieran Delamont