2023-06-07 05:41:23
While firefighters are trying to control these forest fires that are ravaging several regions of the country, it will be interesting to see what the Bank of Canada will decide to do on Wednesday to extinguish inflation, which is also doing a lot of damage. Consumer debt is soaring, credit card use is at record highs, and the number of insolvent seniors is growing.
Normally, credit card balances drop in the early months of the year, following the peak of the holiday season. In 2023, this has not happened. They continued to climb, rising from $3792 in December to $3821 at the end of March.
One in three people carry a balance on their credit card from month to month, which is never good for the budget.
If the balances are higher, it is because purchases paid for with Mastercard and Visa are more substantial, thanks to inflation. Average monthly spend per credit card holder now hits $2,207, up $400 from first quarter of 2020. “For a first quarter, this is a record,” said Jean-Philippe Saumure, senior advisor, data and analysis, at Equifax.
Since salaries do not always increase as fast as the cost of living, paying off debts becomes more laborious. Thus, the number of people who missed at least one payment increased by 18.8%. More specifically, 175,000 consumers were unable to pay their credit card or car loan, for example.
It’s not for nothing that the phone rings more at BDO Canada, where the month of May was particularly busy, according to Ronald Gagnon, Licensed Insolvency Trustee and Partner.
“People are turning to consumer proposals more than before. The profiles are very varied. It can be people who have a decent income, but too much debt, or people with lower incomes who have borrowed lots of small amounts from lots of places. Microloans are something we didn’t see two years ago. We are talking regarding sums of $500 or $1,000 borrowed at rates far exceeding those of credit cards.
According to the Office of the Superintendent of Bankruptcy, the number of consumer proposals has jumped in all provinces since the beginning of the year.
For Quebec, the number of proposals remains slightly lower than it was before the pandemic. However, the reverse is true in Ontario, where the 2019 number was greatly exceeded, as well as across Canada.
If Quebec differs from Canada, the fact remains that the trend in terms of insolvency is not going in the right direction.
These insolvencies are partly explained by the increase in the average consumer debt (excluding mortgages) in the country. It is now close to $21,000, which compares to $18,282 in Quebec.
Ronald Gagnon notes, however, that his customers have not abused the credit. “It is truer than ever. It’s not abuse. People are finding it increasingly difficult to cover their basic needs. “Some people find extra income, by becoming drivers for Uber, in particular, but it is not always enough.
Another growing phenomenon is the rise in the number of insolvent seniors, even among homeowners. More and more people are in debt when they retire.
With reduced income, it is no longer possible to make all the payments. However, the banks do not want to systematically grant a mortgage margin to these retirees whose incomes are low. And selling the property isn’t always an option, especially in villages where condos and apartments are rare or non-existent. You have to live somewhere! Often, there is simply no other solution than the consumer proposal which allows you to keep your home, unlike bankruptcy. Creditors accept the offer made to them in the vast majority of cases.
As we can see, inflation hurts. It is not for nothing that the Bank of Canada is determined to reduce it to 2%. Will it raise the key rate this Wednesday for the 9e times in 16 months? A majority of economists believe not. Some predict instead that the increase will be announced in July.
For many households, rate hikes hurt. There is no doubt regarding it, even if the banks show flexibility with their customers with their throats cut so as not to end up with a housing stock. Others have to postpone their dream of home ownership because they no longer qualify.
But the Bank of Canada judges that inflation is even worse for the country’s economy and the well-being of households.
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