Amid high inflation rates in Canada, which peaked in June at a staggering 8.1 per cent, a new survey has found that many Canadians are now turning to debt to keep up with their expenses.
July saw a slight dip in the national inflation rate, dropping by 0.5 per cent. Still, the sharp price increases in 2022 have hurt many individuals and businesses in the country, according to a survey published on Aug. 16 by Finder.com, a personal finance comparison site.
Taking on debt to pay bills often means taking on personal loans. According to the survey, which interviewed more than 1,000 Canadians about how they’re coping with inflation, one in four admitted to doing so to cover their expenses.
It also found that roughly 7.3 million Canadians over the age of 18 used loans or other forms of debt to keep up with inflation.
TOP REASONS FOR TAKING ON DEBT
The survey’s respondents listed paying bills, consolidating debt, and covering living expenses after losing a job as the most common reasons for taking on debt.
But other important expenses such as buying a car, education and home renovations weren’t too far behind.
This has led to many Canadians reporting a reduction in spending. Nearly 60 per cent reported spending less on luxuries like clothing or entertainment, while 43 per cent said they’ve reduced the amount they spend on major purchases like renovations or trips.
“Middle-income earners are really struggling,” Romana King, senior finance editor at Finder, said in a release.
“Data shows that wages are not keeping pace with higher living costs and this puts middle-income earners – the bulk of Canadians – in a tough position. It forces many to start prioritizing their expenses and finding ways to make ends meet.”
YOUNGER CANADIANS ARE BECOMING MORE UNDEBTED
While rising costs of living are impacting all age groups, the youngest adults in Canada have been hit the hardest, the survey found.
Of the respondents, 27 per cent of millennials aged 27 to 41 reported taking on debt to pay off their expenses, followed closely by 26 per cent of Gen Z respondents aged between 18 to 26.
The survey also found that 27 per cent of Gen X respondents, aged 42 to 56, also took on debt to combat inflation.
Fewer baby boomers went into debt, at only 18 per cent reporting taking loans to keep up with their expenses. However, this was also the group that cut back the most on spending, at 66 per cent.
HOUSING COSTS ARE LEADING TO MORE FINANCIAL HEADACHES
Many Canadians listed housing expenses as their top concern when asked how inflation was affecting their entire household budgets.
In 2022, 1.3 million people over the age of 18—or roughly four per cent of Canadians—reported being behind on their rents or mortgages.
The survey around found that renters are more at risk than homeowners with mortgages, with nine per cent of renters estimated to fall behind on payments, as opposed to six per cent of homeowners.
Gen Z respondents were four times more likely to consider moving for lower housing costs than Boomers, at 12 per cent compared to three per cent.
“It’s easy to feel overwhelmed when inflation increases the cost of living,” King said, adding that cutting unnecessary expenses can cut usually result in around 15 per cent in savings for most Canadians.