One in five Canadians are likely to take on more debt thanks to the Bank of Canada’s decision to maintain its key interest rate of 0.75%, according to a survey conducted for Calgary-based MNP Ltd., a personal insolvency practice.
“This news is alarming news at a time when consumer debt in Canada is at an all-time high and the downturn in the energy sector is resulting in layoffs,” says Donna Carson, senior vice president of insolvency and restructuring with MNP Ltd. “The big fear is that if people take on more debt, they will be unable to meet their repayment obligations when interest rates rise.”
The survey also found a large disconnect between what Canadians believe their debt-to-income ratio is compared to what it likely is. In Dec. 2014, Statistics Canada released a report that average household debt in Canada has reached an all-time high of 162.6% of disposable income, meaning that Canadians owed $1.63 for every dollar of disposable income.
When asked to assess the average Canadian’s debt ratio, respondents said they believe it is 48%, nearly 120 points below the actual figure. When assessing themselves, however, this figure is even more incorrect. Canadians identify their own debt-to-income ratio at only 25% compared against the actual number of 162.6%.
Other findings include that eight in 10 Canadians either strongly or somewhat agree that most Canadians do not take their debt obligations as seriously as they should and 89% of Canadians agree that paying down debt is more financially important than saving.
The Ipsos Reid poll was conducted between Feb. 6 and 12. It used a sample of 1,006 adults throughout Canada.