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Analysis

Nearly Half of Canadians Are Now On the Verge of Financial Ruin Thanks to Stagnant Wages and Rising Debt

Stagnant incomes and rising debt drive 48% of Canadians to brink of insolvency

Nearly half of all Canadians say they’re currently living paycheque-to-paycheque, standing on the edge of financial insolvency.

According to a new study conducted by Ipsos, 48% of Canadians polled say they’re only $200 away from insolvency every single month, up from 46% the previous quarter.

The study also notes 26% said they had “zero funds” leftover at month-end because they don’t make enough to pay their bills and cover debt obligations.

That’s caused some worry for some accounting firms like MNP, which has seen its consumer debt index drop four points, “underscoring Canadians’ deteriorating financial situation.”

MNP President Grant Bazian noted:

This isn’t simply a matter of people living beyond their means. The reality is that too many households simply cannot make ends meet, however hard they try.

Studies have found shaky, debt-fuelled consumer spending to be a key factor behind Canada’s post 2008 recovery.

In 2014, a leaked federal report described Canada’s middle class as one “that isn’t growing in the labour market, is increasingly indebted although it has a relatively modest standard of living, and are less likely to move to higher income.”

One of reason Canadians find themselves in so much debt is stagnating wages. As the Globe and Mail noted in 2017, “through successive years of slow economic growth, the debt-to-disposable-income ratio has been stuck at or near record levels”:

This is our strange economic reality today – people are taking on debt to make up for stagnant or declining purchasing power.

Earlier this year, while debt rose in 2017, incomes for a majority of Canadian workers barely budged, despite significantly-above-average GDP growth.

A look at figures for 2018 found the net worth of Canadian households fell by $200 billion, the first decrease since 2010. Partially underlying that trend, according to the report by Statistics Canada, was the fact that while Canada’s richest are saving quite a lot, the rest are in the red.

As for 2019? The Bank of Canada reported Wednesday the economy has been stuck for six months. There’s little reason to anticipate working Canadians’ incomes will rapidly pick up in that environment to meet current debt levels.

 

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