Is Our Economy Really Better
Before the pandemic hit, a large percentage of Canadian families were in dire financial situations and our consumer debt loads were well above historical highs and other developed nations.
But now that our economy has been shut down and a third of our population is out of work, everything is magically ok? Of course not! Let me explain just how crazy this thinking is.
If we look back to March of this year when MNP released their quarterly Consumer Debt Index, consumer debt fears in Canada were at an all time high. But when MNP published their latest survey results last week, people who were previously struggling were now feeling much more optimism.
The latest poll showed that 41 per cent (up 5 points) of Canadians said they’d rate their current debt situation as “excellent” compared to pre-pandemic levels. Six per cent fewer Canadians were concerned about their current debt levels versus pre-pandemic levels as well.
So why are things looking so much better suddenly? Did we see some major foreign investments in Canada? Did our resource industry suddenly get cost-effective ways to get their products to global markets and create a few hundred thousand new jobs? Did Canada suddenly become a major manufacturing or technology exporter? Did the price of oil jump above $150 per barrel?
Last time I checked, none of the above happened and nothing else that would suddenly make our economy in a better place. Instead, government support programs, mortgage deferrals and flexible credit arrangements have contributed to a significant decline in insolvency filings since the start of the pandemic. And at the same time, these programs have clearly given many Canadians a false sense of security.
It should be noted that the same MNP report showed that although B.C. consumer insolvency filings fell 37 per cent year-over-year, almost half of British Columbians are still within $200 of financial insolvency at the end of the month. Hardly a rosy picture if you ask me.
So why bring this all up? I don’t intend to simply share more bad news as we certainly have enough to go around already. But I do want to warn people from falling into a false sense of comfort. What happens when the current government relief measures are discontinued? And what happens when taxes go up to pay for all of these relief measures?
Creditors will come calling and mortgage deferrals will not be continued. Companies with reduced revenues will be forced to layoff more staff when the wage subsidies come to an end.
If there has ever been a time to get your own financial affairs in order it is now. As things re-open, discretionary spending must be kept under control and you need to do what you can to brace for the coming storm.