Nearly 1 In 4 Canadians Unable To Pay Their Bills: Transunion

Canadians have been able to maintain an epic borrowing spree, but cracks are starting to appear. Transunion’s Q1 2023 Consumer Pulse survey found a significant share of households won’t be able to cover their bills. Behind the lack of financial confidence is sky-high inflation, that’s leading consumers to cut back on spending, and delaying plans for new credit. That’s bad news for Canada’s credit-driven economy, that’s already having trouble with per capita growth. 

Nearly 1 In 4 Canadians Won’t Be Able To Pay Their Bills

A large share of Canadians aren’t confident in their ability to repay their bills. Nearly a quarter (23%) of households said they will be unable to make the full payments on at least one bill. While most are confident (77%) in their ability to cover their payments, that’s still a lot of people that are getting buried by an overindulgence in credit.

Fading confidence is also seen in the expectations of household finances. Only 55% of consumers felt their finances are going as planned in Q1 2023, down 5 points from the previous quarter. Still a majority, but over 2 in 5 households are uneasy about the way their finances are heading. So what’s causing this anxiety? 

Canadians Increasingly Feeling Financially Unstable Due To Inflation

Canadian household budgets are getting hit hard by inflation. Consumers cited it was the biggest single issue (49%) impacting their finances. Inflation has also resulted in nearly 3 in 4 households changing their purchasing behavior. 

Source: Transunion Canada.

As a result, the economy should see a sharp pull back in the amount of  spending. Most households (53%) are cutting back on discretionary spending as a result, with Millennials reporting the highest intention of cutting back (59%). The latter is really important for an economy, since Millennials are now in their prime earning years. If they cut back on spending. It can produce a substantial loss of revenue to businesses, resulting in a drag on the economy. 

Canadians Expect To Borrow A Lot Less Money Going Forward

Speaking of a drag on the economy, consumers aren’t planning on taking out new credit. Credit allows a purchase today at the expense of future income, and record low rates helped to stimulate a lot of purchasing. Now climbing rates are intentionally tapering credit use, helping to slow the excess demand that’s been driving inflation. 

Consumers are getting that message loud and clear, and are (mostly) responding as expected. Most households (56%) have said interest rates have impacted their borrowing intentions over the next 12 months.  

The impact of higher rates were already appearing at the end of last year. Loan originations fell for every major lending segment, with credit cards being the sole exception. As rates continue to rise, reduced credit demand is expected to taper even further in the short-term.