TransUnion’s most recent Consumer Pulse study* shows that almost half (41%) of Canadians felt their household finances were worse than planned, up four percentage points from Q3 2021. While the vast majority (81%) said their household income either stayed the same or increased over the last three months, this sentiment likely reflects rising inflation and the impact of higher interest rates on disposable income and buying power. Growing cost concerns gripped many households: 69% cited inflation as the #1 or #2 biggest concern affecting their household finances in the next six months. Looking long-term, nearly one-third (29%) of Canadians expressed pessimism about household finances in the next 12 months, up five percentage points from a year ago.
“We are seeing wavering confidence among Canadians due to continued concerns around cost-of-living price increases,” said Matt Fabian, director of financial services research and consulting at TransUnion. “More than half of Canadians surveyed indicated that inflation increases are outpacing their incomes. At the same time, increased interest rates are dampening Canadians’ appetite for taking on new credit. While most Canadians expect their household income to stay the same or increase, Canadians are taking a pragmatic approach to managing their household finances. Many are saving more and spending less, most likely to accommodate price hikes and anticipate the impact of a potential recession.”
Canadian households shift spending and saving behaviours.
More than half (54%) said they have reduced discretionary spending (e.g., dining out, travel, entertainment) in the past three months. In addition, Canadians:
- Paid down debt faster (21%).
- Saved more money in an emergency fund (21%).
- Cut back on retirement savings (15%).
- Saved more for retirement (10%).
- Increased usage of available credit (10%).
- Used retirement savings (9%).
Rise in interest rates dampened Canadians’ appetite for credit.
To combat inflation, the Bank of Canada continued to raise interest rates, which impacted consumer demand for credit. While the vast majority (80%) of Canadians indicated they are not planning to apply for new or refinance existing credit, responses differed by generation. Gen Z respondents indicated they were more likely to apply for credit (42%), while Baby Boomers were least likely to apply (7%). Nearly half (47%) of total respondents said rising interest rates will have a high or moderate impact on whether or not they will apply for credit over the next 12 months. Of those who intend to apply for new or refinance existing credit, more than half (53%) plan to apply for a new credit card in the next year. Among those respondents, other planned credit and loan activity in the next 12 months included:
- New car loan or lease (25%).
- New personal loan (23%).
- Refinance mortgage, home loan or bond payment (18%).
- New mortgage, home loan or bond payment (17%).
- Refinance car loan or lease (13%).
- Refinance personal loan (10%).
- New home equity line of credit (10%).
- New private student loan (9%).
- Refinance private student loan (5%).
- Refinance home equity line of credit (3%).
Increased pessimism about financial outlook.
While 87% of Canadian households expect their income to either stay the same or increase over the next 12 months, the TransUnion study findings indicate there is increased concern about the future. Around a third of Canadians expressed pessimism about their household finances over the next year. Among generations, Baby Boomers reported the biggest increase in their level of pessimism (up 10 percentage points in the past year), likely a response to inflationary stressors that could affect retirement. To anticipate a potential recession, Canadians are reducing spending (68%), building up their savings (32%) and paying down debt (31%). In addition, consumers have taken a more active role around understanding credit – more than 41% of households indicated they check their credit at least monthly, and 84% felt monitoring their credit is important.
Paying the bills is a concern among many Canadians.
While the majority felt confident they could pay their bills, 25% of Canadians reported they will be unable to pay at least one of their current bills and loans in full. Of this group:
- 38% said they will pay a partial amount based on what they can afford.
- 25% reported they will borrow money from friends or family to pay their bills or loans.
- 15% indicated they will use their credit card.
- 14% planned to use money from savings.
- 12% said they will take out a personal loan.
Canadians brace themselves for shifts in household spending pressures.
As Canadians look ahead to the next three months, they anticipate increasing their household spending on:
- Bills and loans (27%).
- Digital services (16%).
- Retail shopping, such as clothing or electronics (15%).
- Medical expenses (13%).
- Discretionary spending (12%).
- Retirement funds/investing (10%).
- Large purchase, such as appliances or cars (10%).
The complete Consumer Pulse study can be viewed here.
*The most recent Consumer Pulse study includes a survey of 1,058 Canadian consumers conducted between Aug.19 –26, 2022.