High Cost of Living Drives Canadians to Cut Discretionary Spending and Seek Additional Credit
TORONTO, July 09, 2024 – It isn’t rocket science, any Canadian consumer heading to the grocery store can see two things, grocery prices are up substantially, and shrinkflation is real.
The latest Q2 2024 Consumer Pulse study from TransUnion reveals a grim outlook for Canadian household finances, with nearly half (46%) of respondents reporting that their financial situation is worse than anticipated for this time of year. This marks a four-percentage-point increase from a year ago.
The study highlights the significant impact of inflation and rising costs on Canadian households, leading to heightened financial stress and a shift in spending and saving behaviors.
Key Findings from the TransUnion Canada Consumer Pulse Study
The study provides a detailed overview of the financial pressures faced by Canadians, driven by persistent inflation and economic uncertainties. Here are the key findings:
- Inflation Concerns Dominate: A significant 86% of Canadians list inflation as one of their top three household financial concerns, the highest level recorded since TransUnion began tracking this data quarterly in Q2 2022.
- Income vs. Inflation: Despite 79% of respondents reporting stable or increased income in the past three months, 57% feel that their earnings are not keeping pace with inflation. Consequently, 58% of Canadians are not optimistic about their financial prospects over the next year.
- Anticipated Increase in Bills and Loans: 38% of Canadians expect their payments for bills and loans to rise in the next three months, reflecting the broader economic pressures.
Impact of Inflation on Different Demographics
The study reveals that certain demographics are more acutely affected by inflation:
- Older Canadians and Fixed Incomes: Older Canadians, particularly those at or near retirement, are struggling with fixed incomes that are not keeping up with inflation. Among Gen X and Baby Boomers, 66% and 60% respectively, report their incomes are lagging behind inflation.
- Younger Canadians and Interest Rates: Younger Canadians, including Gen Z and Millennials, are particularly sensitive to rising interest rates, with 77% and 74% respectively indicating that interest rates impact their decision to apply for new credit.
Shifts in Financial Behavior
In response to the rising cost of living, Canadians are adjusting their financial behaviors in several notable ways:
- Discretionary Spending Cuts: Over half (52%) of Canadians plan to reduce discretionary spending on items such as dining out, travel, and entertainment. This follows 57% who have already cut back in the past three months.
- Debt Management and Savings Adjustments: Despite some Canadians only making minimum payments on credit cards, there was a four-percentage-point increase in those who paid down debt faster compared to Q1 2024. Additionally, 17% have increased their emergency fund savings, while 16% have cut back on retirement savings.
Credit and Debt Trends
The economic pressures are also influencing Canadians’ credit and debt decisions:
- Increased Credit Applications: Over a quarter (27%) of Canadians plan to apply for new credit or refinance existing credit in the next year, reflecting a need for additional liquidity.
- Struggling with Bill Payments: Nearly one-third (30%) of Canadians expect to be unable to pay at least one bill or loan in full. Among those, 35% plan to pay a partial amount they can afford, while 32% of Gen Z plan to use their available credit cards.
Conclusion
The TransUnion study paints a challenging picture for Canadian households as they navigate high inflation and economic uncertainty. The data underscores the importance of prudent financial management and the potential need for policy interventions to support those most affected by these economic conditions. As Canadians brace for continued financial strain, understanding and adapting to these trends will be crucial for both individuals and policymakers.
About TransUnion
TransUnion is a global information and insights company with over 13,000 associates operating in more than 30 countries. In Canada, TransUnion is a leading credit bureau, providing actionable consumer data to the financial services ecosystem and most of Canada’s largest banks. Through innovation and technology investments, TransUnion helps consumers and businesses achieve economic opportunity and personal empowerment.
