Worries about Canadian consumer debt level eased due to government aid programs

At the beginning of the COVID-19 pandemic, we’ve seen financial situation of many households facing hard challenges. In March, the quarterly MNP Consumer Debt Index showed that consumer debt fears reached a record high level. Canadians who already had financial issues, worried that the pandemic, growing debts and a possibility to lose a job may lead them to bankruptcy.

But now the tone is different.

According to the recent MNP Ltd. survey, different kinds of government support helped some consumers who were previously struggling to feel more optimistic today. Now, Canadians are more confident in their ability to cover living expenses for the next 12 months without increasing their debts (61%, which is 3% higher, than in March). More respondents say their current debt situation is excellent (an increase by 5% to 41%) in comparison to the pre-pandemic levels.

The report shows that fewer people regret the amount of their debt (from 47% to 44%), and fewer people worry about their current debt level (from 46% to 40%).

More than 25% of respondents say their financial situation has improved compared to a year ago, and more than one-third believe it’s even better than 5 years ago.

It looks like many have felt certain financial relief due to the government programs and fewer possibilities to spend money. Canadians have faced massive closures, they were driving less and saved on gas, they cooked more at home.

“Although there were small gains in spending on groceries, utilities and online shopping, many households still showed significant savings. Moreover, sometimes they even helped them with making previously unsustainable debt payments,” – Grant Bazian, president of MNP, noted.

According to the report, the number of respondents who are $200 or less away from financial insolvency went down by 6% and reached 43%.

Yes, it sounds quite optimistic, but there’s still a reason to worry about: what will happen, when the government relief measures are closed? The government subsidies will be over someday, banks will close their mortgage deferral programs at some point.

It’s time to change our spending habits. In order to be disciplined with lower spending level, it should be your decision to consume less. As soon as businesses will reopen, you’ll face temptation to start spending more, and there’s a possibility of discretionary spending growth.