Canadians are heading into the New Year feeling more pessimistic about their personal finances, despite declining interest rates, according to a new report released Monday by MNP.
The latest MNP Consumer Debt Index, conducted quarterly by Ipsos, dropped a staggering 10 points to 79 points, marking the second-lowest level on record since the Index’s inception in 2017. Canadians’ personal debt rating has plunged to an all-time low, marking a sharp 12-point decline from the previous quarter. The only other time personal debt rating reached close to this low point was in December 2022, the company reported on Monday.
“While interest rate cuts last year provided some initial relief from their financial worries, Canadians are starting the New Year with holiday bills arriving and a more pessimistic view of their finances,” said Grant Bazian, president of MNP LTD, the country’s largest insolvency firm.
“Many Canadians are already tightening their finances, reassessing budgets, and exploring cost-cutting measures to manage rising living costs or debt repayment. Unfortunately, in some cases, even substantial sacrifices may fall short of providing meaningful financial relief even in the lower interest rate environment.
“Less wiggle room leaves households vulnerable to unexpected expenses or the impacts of economic changes. For those already living paycheck to paycheck, any financial disruption could quickly escalate into a crisis.
“For many, this time of year can feel overwhelming as the holiday bills arrive and financial realities set in, but reaching out for expert advice can mark a critical turning point – an opportunity to regain control and avoid more severe financial consequences such as bankruptcy.”
MNP said economic uncertainty is reflected in Canadians’ pessimistic outlook on their financial future. Fewer Canadians this quarter expect their debt situation to improve one year from now (27%, -4pts), while a growing number anticipate it will worsen (19%, +7pts). Alongside this, job anxiety has reached an all-time high, with two in five (41%, +9pts) worried someone in their household could lose their job. Moreover, half of Canadians (51%, +5pts) believe they will not be able to cover all of their living and family expenses in the next 12 months without going further into debt.
“There was a sharp increase in the number of Canadians teetering on the edge of financial insolvency compared to last quarter, with half (50%, +8pts) now indicating they are $200 or less away from not being able to pay their bills and debt payments each month, a significant eight-point increase since last quarter. One-third say they are already insolvent (35%, +9pts), jumping nine points. Women (55%, +4pts) are more likely than men (44%, +13pts) to be $200 or less away from insolvency, although the jump among men this quarter was particularly striking, increasing 13 points,” it said.
“Despite consecutive interest rate cuts in 2024, Canadians’ attitudes towards their finances and interest rates have worsened this quarter. Half of Canadians (50%, +2pts) are still concerned about their ability to repay their debts, even if interest rates decline. Nearly half (46%, +4pts) are concerned that rising interest rates could move them towards bankruptcy, while two-thirds (65%, +2pts) say they desperately need interest rates to go down.
“In line with these concerns, the financial cushion for many households is eroding as disposable income shrinks, leaving less room to manage unexpected expenses. This quarter, Canadians have on average $147 less left over at the end of the month, decreasing to $790.”
As financial pressures mount, Canadians’ ability to absorb an extra $130 in interest rate increases has deteriorated, explained the report.
“Fewer Canadians this quarter (17%, -5pts) feel much better equipped to handle such an increase than they used to be, while more (37%, +4pts) report being much worse off. The possibility of unexpected expenses or life changes also weighs heavily on Canadians, with one-third (33%, +7pts) expressing a lack of confidence in their ability to cope with an unexpected auto repair or purchase, and nearly two in five (38%, +6pts) indicating they are not confident in their ability to cope with a job loss or change in wages or seasonal work,” it said.
Related Retail Insider stories:
Talk about looking at a half empty glass. Deciding to reduce your debt isn’t pessimistic, it’s realistic and a good strategy with the threat of tariffs looming over us. 2025 will be another year of low spending for me, partly because this went so well in 2024. I’ll be well-prepared for any mortgage rate increase when it comes time for renewal and pleasantly surprised if mortgage rates fall. I don’t need any more stuff so, aside from some improvements around the house, don’t need to spend much. The things I enjoy doing don’t cost much either.
Interesting drop in the MNP Consumer Debt Index—could signal a shift in consumer behavior!