According to the third annual BDO Canada Affordability Index, which examines how affordable life is in Canada, the COVID-19 pandemic has widened the affordability gap, intensifying economic disparities across the country. The survey revealed that more than twice as many Canadians are worse off financially due to the pandemic compared to those whose personal finances have improved (39% vs 18%). Canadians who are worse off are almost four times as likely (46% vs 12% of those better off) to say that their debt load is overwhelming due to the COVID-19 pandemic, and that feeding their family is challenging vs those who are better off (30% vs 14%).
Debt and disparities remain
Those Canadians who already faced financial security challenges before the pandemic have not fared well since the pandemic began. According to the survey results, two-thirds (66%) of Canadians with debt cannot keep up with their debt payments or have had to make sacrifices in their budgeting in order to do so. While this typically involves foregoing non-essential “nice-to-have” purchases like entertainment or recreation, just under one-quarter (23%) must forego essentials like food or clothing or they cannot meet their payments.
Debt is not going anywhere for some Canadians this year. Among those with increasing debt, almost three-in-four (73%) say it increased more this year than in 2019, suggesting some Canadians’ debt is accelerating due to the pandemic. Furthermore, for the two-in-five (39%) Canadians who have accrued more debt due to the pandemic, they tend to have less education and lower income. Accruing additional debt during the pandemic is also more likely for residents of British Columbia, Alberta and Ontario.
Those who are worse off due to COVID-19 are significantly more likely to report affordability challenges but may not be confident in seeking help. Only three-in-10 (29%) Canadians who have taken on extra debt have applied for government benefits.
Canadians rethinking wants versus needs spending
The pandemic has framed the way many are spending money and engaging in the economy. While two-in-five (42%) Canadians are savings less, nearly three-in-10 (28%) are saving more. For three-quarters (76%) of Canadians saving more during the pandemic, the primary reason is decreasing non-essential spending. However, those Canadians who are saving more (28%) are more likely to be younger (44% of Gen Z and 33% of 25-34-year olds), university educated (34%) and earn more than $100,000 (36%). For those who haven’t taken a financial hit during the pandemic, shifting spending away from non-essentials such as restaurants, events and travel, has increased perceptions that they can buy things they need and want and has reduced concerns about debt.
The survey also found that while Canadians are reporting fewer affordability challenges overall during the pandemic compared to 2019, those who are worse off due to COVID-19 are significantly more likely than other Canadians to be facing affordability challenges across the board. For these Canadians, the financial challenges remain a threatening reality and even essential spending is being impacted. One-in-10 (13%) Canadians with debt are having to cut down on essentials such as food and clothing to make their payments.
Shifting financial priorities from long-term goals to emergency savings
The survey showed over half of all Canadians (51%) said saving for an emergency fund is more important now than pre-pandemic, versus three-in-10 (28%) saying retirement savings are more important and two-in-10 (19%) saying home improvement or renovations are more important. One-in-five (20%) are slowing down (or thinking of slowing down) their savings goals as a result of COVID-19.
While some may make quick changes for retooling budgets, one-in-five (20%) Canadians have (or have considered) decreasing their long-term savings. Of those, one-third (32%) have done so to bolster emergency funds or short-term savings. One-quarter (24%) have also pushed out their retirement date.
This is a financially challenging time for Canadians as reduced affordability and debt obligations continue to carry weight. According to the survey results, for Canadians with debt (64%), the most common type continues to be credit cards with balances (58%), followed by mortgages (49%) and car loans (38%).
SOURCE BDO Canada Limited