“I think people have lost the elasticity in their budget — that ability to absorb any further shock”
Nearly half of Albertans are on the cusp of inolvency, if they’re not already that deep in the red, a new report from MNP Ltd. suggests.
The accounting firm’s latest Consumer Debt Index (CDI) was released Monday, highlighting that 47 per cent of Alberta-based respondents were $200 or less away from failing to meet all their financial needs — 13 percentage points higher than last quarter.
MNP’s CDI, which is conducted by polling firm Ipsos, also found that just under one-third (32 per cent) of Alberta respondents — 10 points higher than last quarter — say they already can’t cover their bills and debt payments.
The gloomy findings come despite a recent interest rate cut by the Bank of Canada, which dropped the key rate by a quarter of a percentage point in early June, from five per cent to 4.75 per cent. It marked the first time the rate has come down since March 2020.
MNP’s survey found that two-thirds of Albertan respondents (67 per cent) indicated they “desperately” need interest rates to decrease. In addition, nearly three in five (58 per cent) expressed concern that interest rates may not fall quickly enough to provide necessary financial relief, and that interest rates will need to go down “a lot” before their financial situation significantly improves.
Dramatic shift toward insolvency in Alberta, report shows
Lindsay Burchill, a Calgary-based licensed insolvency trustee and the vice-president of consumer insolvency for MNP Ltd., said significantly more Albertans this quarter were on the verge of insolvency, and many felt pessimistic about their personal finances.
That financial pessimism has been fueled by a red-hot rental market and inflation in Alberta that have outpaced national averages and cost of living increases, Burchill said.
“I think people have lost the elasticity in their budget — that ability to absorb any further shock — and now they’re really at a tipping point where they have to look at some professional options to deal with their debts and maintain their living costs,” she said.
Insolvency, according to Burchill, refers to when someone cannot pay their financial debts and their liabilities exceed the value of their assets.
She called the most recent CDI results a “significant shift” toward insolvency for many, and added that Alberta was the only province to see such a dramatic increase this quarter.
And while many Albertans may have been hoping for a more pronounced interest rate cut than what the Bank of Canada announced in June, Burchill argued that a further drop will likely not be reflected in MNP’s next CDI.
“Someone who renewed their mortgage six months ago is not going to see a huge benefit from any drop that is going to happen in the coming months,” she said. “They’ve already locked into a higher rate, potentially, and that’s what they need to maintain to keep their home.
“Even if Bank of Canada interest rates drop, that’s not to say the inflation we’re seeing in food costs or everyday life are going to follow the same trend — and certainly not fast enough.”
Ipsos undertook the survey for MNP’s CDI from June 6 to 11, interviewing 2,000 Canadians aged 18 years and older. Weighting was then employed to balance the demographics to ensure the sample’s composition reflected Canada’s adult population according to Census data.
The precision of Ipsos’ online polls is measured using a credibility interval, which in this case, was accurate to plus or minus 2.5 percentage points, 19 times out of 20.
MNP’s next quarterly CDI is expected to be released in October.