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BDO Affordability Index 2020

COVID-19 intensifies economic disparity in Canada

While one-in-five (18%) Canadians are better off, nearly two-in-five (39%) are worse off

According to the third annual BDO 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%).

The survey of over 2,000 Canadians, conducted by the Angus Reid Group in partnership with BDO Canada Limited, shows a clear divide between Canadians who are losing ground and those whose financial situation hasn’t changed or has improved during the pandemic. Canadians are more likely to have had their personal finances worsen this year if they are self-employed (60%), employed part-time (44%), have experienced layoffs or reduced salary during the pandemic (67%) or have an income under $50,000 (42%). Canadians are more likely to have benefitted financially during the pandemic (18% overall) if they did not experience layoffs or reduced hours due to the pandemic (24%), are younger at 18-24 years old (32%) or 25-34 years old (25%) and have a higher income of over $100,000 (23%).

“For the past three years, the BDO Affordability Index has shown that Canadians are struggling more and more with the cost of living. Faced with COVID-19, however, the perception of affordability has changed. Canadians are saving and cutting back on spending, but they are also finding it more difficult to keep up with debt. These factors will likely put long-term stress on families and the economy.”

Doug Jones, President of BDO Canada Limited

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.

"A significant number of Canadians are losing confidence in their ability to manage their finances, yet they are reluctant to seek help. At BDO, we are encouraging people more than ever to start having conversations, consider re-evaluating short and long-term financial goals, and to seek professional debt advice if they are feeling discouraged, scared or unsure of their financial outlook.”

Doug Jones, President of BDO Canada Limited

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.

Looking ahead

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%).

"We are encouraging Canadians to remain vigilant. Now is the time to keep a close eye on household budgets and avoid debt whenever possible. If you are struggling, seek advice from a professional. A Licensed Insolvency Trustee can help address any concerns you may have about dealing with your debt during the pandemic.”

Doug Jones, President of BDO Canada Limited

BDO Debt Solutions has over 160 locations across Canada and over 60 Licensed Insolvency Trustees (LITs). BDO’s LITs and debt professionals are committed to helping Canadians take control of their financial future and turn the page on debt. LITs are the only professionals that are licensed by the federal government to file consumer proposals or bankruptcies on behalf of individuals.

About the BDO Affordability Index

In partnership with BDO Debt Solutions, Angus Reid Group conducted an online survey from September 1-8, 2020, among a representative randomized sample of 2,047 Canadian adults who are members of the Angus Reid Forum. For comparison purposes only, a probability sample of this size with this sample plan would carry a margin of error of 2.2 percentage points, 19 times out of 20. Discrepancies in or between totals are due to rounding.

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