Appearance before the Standing Committee on Finance (July 7, 2020): Pre-COVID-19 debt levels: Evidence from the 2019 Canadian Financial Capability Survey

Issue

Fielded in 2019 on a five-year cycle, the Canadian Financial Capability Survey (CFCS) sheds light on Canadians’ financial resilience and debt management.

Background

Health emergencies, requirements for physical distancing, isolation, and employment layoffs have made it harder for Canadians to service their debts and pay their bills on time.

Data/Quick facts

• Before the pandemic, the majority of Canadians (65%) were keeping up with their bills and payments; however, a growing share were already facing financial pressures:
  • Those most likely to be struggling to meet their financial commitments were under age 65, low-income households (under $40K), lone parents, separated/divorced or Indigenous.
• Two thirds of Canadians (65%) were confident that they could come up with $2,000 if needed in the next month:
  • Vulnerable populations such as lone parents; low-income households; renters; persons aged 55 and under; those who are separated, divorced or single; and women were the least confident in their ability to cover this unexpected expense.
• Almost one-third of Canadians (31%) believed they had too much debt:
  • Aside from mortgages (40%), other types of common debt included balances on credit cards (29%), vehicle loans or leases (28%), personal lines of credit (20%), or student loans (11%).
• Compared to the general population, vulnerable groups were less likely to have a mortgage but were more likely to carry other types of consumer debts:
  • The most common types of other debt among vulnerable groups were credit card debt, lines of credit and automobile loans.
  • Median total amounts of vulnerable population’s non-mortgage debts ranged from $14K-25K.
  • Indigenous Peoples (8%) were the most likely to carry these other debts, along with lone parents (8%), and followed by low-income households (4%).
• At the end of June 2020, many Canadians reported being unable to make the minimum monthly payments of their credit cards (20%), mortgage (11%), personal loans (8%) and auto loans (7%)  (J.D. Power, June 25)

Key messages

• Targeted financial education supports are needed to address and mitigate the financial difficulties of vulnerable populations, including Indigenous Peoples, low-income households and lone parents.
• The 2019 CFCS will continue to inform efforts aimed at strengthening the financial literacy of Canadians. For example, the Agency will continue to analyze the CFCS to provide information about sub-groups (particularly vulnerable groups) and use the data a baseline to compare to the results of the COVID-19 Financial Well-being survey.
• FCAC is planning to survey Canadians to assess how they have been managing their finances during the COVID-19 pandemic. These findings will help guide the Agency’s proactive supervision of financial institutions and will also enable the Agency to refine and update our unbiased and fact-based educational information and tools to help consumers make informed financial decisions when managing their debts and borrowing.