Low-income households spend 31 per cent of their incomes on debt repayment

New report shines a light on consumer debt – a potential roadblock to Canada's recovery

 

TORONTO, Nov. 10, 2020 /CNW/ - Almost half of low-income households and 62 per cent of moderate-income households carry debt, with households on low incomes spending 31 per cent of their income on debt repayments, according to a new report published by national charity, Prosper Canada.

Roadblock to Recovery: Consumer debt of low- and moderate-income Canadians in the time of COVID-19, released today, analyzes the distribution, amount and composition of non-mortgage debt held by low- and moderate-income Canadian households and explores implications for federal and provincial/territorial policy makers as they develop and implement COVID-19 economic recovery plans and fulfill their respective regulatory roles.

 

The report showed that credit card debt and installment loans are the most common forms of debt held by low- and moderate-income households with debt. With longer term lengths and larger principal amounts, installment loans from high-cost credit lenders have emerged as a new alternative to payday loans and are the fastest growing form of consumer credit in Canada.

 

Most indebted households hold consumer debt – including credit card and installment debt, auto loans and student loans, with prevalence ranging from 83 per cent of the highest income indebted households to 91 and 92 per cent of indebted low-income and moderate-income households respectively. While mortgages are a major factor in national aggregate household debt levels, they are not the primary driver of debt for low- and moderate-income households. 

 

The COVID-19 pandemic has highlighted in stark terms how financially unprepared most Canadian households were to weather a major economic shock – having low savings and record high debt levels. The Bank of Canada has identified high household debt levels as a potential risk to Canadas' economic recovery and rising insolvency levels are expected as emergency debt deferral measures wind down and households whose incomes have still not recovered are confronted with higher debt payments.  Borrowers who are still making regular payments, but struggling with high debt loads, have few places they can turn, however, for free, unbiased, quality money and debt counselling.

 

"Canada lags peer nations like Australia, New Zealand and the United Kingdom in ensuring vulnerable households have access to free, quality, financial help to deal with money and debt problems," said Elizabeth Mulholland, Chief Executive Officer of Prosper Canada. "Canada has the necessary organizations, expertise and suitable programs we can quickly scale up to help those who are struggling – but only if our governments make the necessary public investments."

 

"According to our recent "Got Debt?" survey, nearly one in four respondents have no idea where to turn for help when facing financial difficulty," stated Michelle Pommells, Chief Executive Officer of Credit Counselling Canada. "There is a massive need for no- and low-cost financial help services to help Canadians navigate the current economic situation, and a ready network of non-profits available to meet the need. We would like to see the Canadian government adopt a collaborative investment approach similar to those offered by progressive peer nations who are already providing these services."

 

The report recommends that Canada's federal and provincial/territorial governments make modest public investments now to support indebted Canadians to regain their financial stability and rebuild their financial health. Doing so will prevent households from falling into crisis and placing additional pressure on public services. It will also address a major potential brake on Canada's broader economic recovery.

 

"Helping struggling Canadians to take control of their debt and avoid going off the financial cliff in this pandemic is a wise investment in everyone's future," concluded Ms. Mulholland.

 

To learn more about the report findings, join Prosper Canada's webinar on November 19, 2020, 1:00 p.m. (EDT) or read the report, Roadblock to Recovery: Consumer debt of low- and moderate-income Canadians in the time of COVID-19.