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Shrinking disposable income pushes more Canadians into debt

Financial Post logo Financial Post 2019-10-28 Colin McClelland
a man wearing a suit and tie: A life-changing event such as a divorce, unexpected automobile repairs, job loss or the death of a family member will drive 70 per cent of respondents into more debt, the MNP survey found.© Getty Images/iStockphoto A life-changing event such as a divorce, unexpected automobile repairs, job loss or the death of a family member will drive 70 per cent of respondents into more debt, the MNP survey found.

More than half of Canadians say they’re increasingly concerned about their ability to pay debts as disposable income shrank by a fifth since June, according to a new survey by a debt restructuring company.

Average monthly disposable income after paying bills and debt obligations fell $142 to $557, says the survey by MNP Ltd., which calls itself the country’s largest insolvency practice.

Nearly half — 48 per cent — of the 2,002 respondents to the early September poll by market research company Ipsos said they’re left with less than $200 at the end of the month.

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“We’re seeing less and less wiggle room in household budgets,” MNP President Grant Bazian, said in a statement Monday. “The reason this is alarming is because it is often unexpected expenses that force people to take on more debt they can’t afford and that begins a cycle of increasing servicing costs, and eventual default.”

The poll comes as the Bank of Canada has parked the benchmark interest rate at 1.75 per cent this year after increases dating back to 2017 and an economy that stalled in late 2018. The outlook since then has picked up with forecasts of stronger growth. That optimism may have rubbed off on survey respondents who reported being more positive about their personal financial positions, Calgary-based MNP said.

The quarterly polls shows 27 per cent say that their debt situation is better than it was a year ago, a increase of three percentage points, and more than a third — 35 per cent — say it’s better than five years ago. The optimism increases looking ahead, with 39 per cent saying they expect improvements in their debt situation a year from now and half believing that it will be better five years from now.

“Household debt has eased marginally and the current holding pattern on interest rates may be giving Canadians a sense of optimism about their finances,” Bazian said. “Interest rates may remain stable for now but that is a cold comfort to those already having a difficult time making their debt payments at the current rate.”

A life-changing event such as a divorce, unexpected automobile repairs, job loss or the death of a family member will drive 70 per cent of respondents into more debt, the survey found. About half — 47 per cent — said they don’t believe they’ll be able to cover their expenses for the next 12 months without increasing their debt, it showed. It increased from 45 per cent in June, MNP said.

The percentage of Canadian who expect a debt-free retirement shrank three percentage points from June to 48 per cent, the poll showed.

”It seems many have resigned themselves to owing money for life,” Bazian said.

• Email: cmcclelland@postmedia.com 

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