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The impact of this year’s consecutive interest rate hikes and persistent inflation is becoming clear, as Canadians are seeing the effect on their wallets. According to the latest MNP Consumer Debt Index, which is conducted quarterly by Ipsos on behalf of MNP LTD, with the cost of living soaring, more Canadians say life’s necessities are becoming less affordable.

Compared to December 2021, significantly more say it is becoming less affordable to feed themselves and their family (52 per cent,+5pts), put money aside for savings (49 per cent,+5pts), pay for transportation (45 per cent,+9pts), pay for clothing or other household necessities (45 per cent,+5pts) and pay for housing (37 per cent,+2pts).

“Canadians are putting more of their paychecks towards paying for basic necessities as the cost of living rises, which in turn is leaving less of a financial buffer to manage the impacts of current and potential future interest rate hikes,” says Grant Bazian, president of MNP LTD., the country’s largest insolvency firm.

While fewer Canadians find themselves closer to insolvency than last quarter (46 per cent,-6pts), meaning they are $200 away or less from not being able to meet all of their financial obligations, the average Canadian has less money overall to spend at month-end as they pay more for life’s necessities.

The amount the average Canadian has left over at month-end continues to drop, decreasing $37 from the previous quarter to $654. Younger Canadians are being hit particularly hard; those aged 18-34 noticed the largest decrease in their average month-end finances, which dropped a whopping $273 to $606.

“We are seeing a modest improvement in the number of Canadians who are at risk of insolvency since last quarter, however, it is important to note that nearly half of Canadians are still just $200 away from not being able to cover their bills and debt obligations. With less overall room in their budgets, any future increases to interest rates or the prices of everyday items could push individuals closer to insolvency,” says Bazian. “Younger Canadians are feeling the squeeze of inflation more than the rest, and will be more vulnerable to economic changes as a result.”

Yet while many Canadians are in a vulnerable financial position, there is some optimism surfacing. More are now rating their personal debt situation as excellent (43 per cent,+5pts) and fewer are rating it as terrible (14 per cent,-4pts). When asked to forecast their expected debt situation a year from now, three in ten expect their debt situation to improve (30 per cent, unchanged), but fewer now believe it will worsen (11 per cent,-4pts).

“This newfound optimism may be temporary, as the economic situation here in Canada is still unfolding. The effects of interest rate hikes tend to reveal themselves over time, so we may be seeing a false sense of optimism right now,” Bazian points out. “We have also generally seen higher levels of optimism during the summer, followed by Canadians becoming more pessimistic heading into the winter months. I would encourage individuals to be cautious with their finances heading into this fall and winter, as only time will tell the full impact of our economic situation.”

Now in its 22nd wave, the MNP Consumer Debt Index has continued to rebound after seeing its lowest recorded score in March 2022, increasing two points from last quarter. The Index, which tracks Canadians’ attitudes about their debt situation and their ability to meet their monthly payment obligations, now sits at 92 points, still remaining well below pre-pandemic levels and relatively low compared to any other September waves.

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