House of cards
The Bank of Canada is widely expected to raise interest rates, if it hasn’t already done so by this paper’s press time. If it does, it will mark the fourth time since last July that the rates have risen, a sign that the bank believes the economy to be stable and unemployment, nationwide, is low.
As usual, those who watch the economy have a variety of opinions about whether or not a hike now is in the country’s best interests — some warn that it’s a bad idea, given fears of the impacts of a possible tariff war with the U.S., while others suggest it could slow the willingness of average Canadians to pile up debt.
Those average Canadians? Sample them, and many have concerns about just how they can be expected to come up with increased payments on loans, or when they have to renew mortgages. That’s pretty much to be expected; if someone says, “Would you like to be charged more?” the usual answer is “No.”
Asked about an increase in a poll prepared for debt consultant MNP, about 28 per cent of those who responded said they couldn’t handle a rate increase, and 42 per cent said increase would affect their ability to cope financially.
That kind of concern is expected. What’s interesting, though, is what people say about not only their debt payments, but their household costs.
The MNP Consumer Debt Index, done by polling firm Ipsos, points out that 27 per cent of Canadians have “absolutely no wiggle room after paying their bills and debt obligations at the end of the month.” More than four in 10 Canadians, 44 per cent, are $200 or less away from insolvency at the end of every month.
Stop and think about that: if people are running that close to empty on a monthly basis, that means something as simple as an unlucky collision with a pothole could break the bank.
And what happens then, particularly in Atlantic Canada?
“Overall, the results underscore a dramatic shift in Atlantic Canadians’ relationship with debt. When faced with unexpected costs, such as home or automotive repairs — even basic household expenses, emergency savings are almost non-existent. Instead, people are going straight to home equity lines of credit, credit cards or other high-interest debt vehicles to make up the difference,” the Debt Index pointed out.
In a press release accompanying the results, MNP President Grant Bazian points out that, “as a country, we owe an astounding $599 billion on credit cards and other non-mortgage consumer debt.”
The numbers are staggering, and when you get down to it, we have no one to blame but ourselves.
We’ve taken advantage of cheap money — of low interest rates — and have failed to realize that era could end.
If we don’t work to get our fiscal houses in order, it’s something that could home to roost with a devastating crash.