The economic downturn that followed the arrival of the coronavirus pandemic and resultant efforts to curb the spread of the virus have had an unequal impact on Canadians.
Those with precarious service-sector jobs, already among the most vulnerable, have been unemployed or underemployed for much of the past year. Those who’ve kept their jobs have in many ways been better off – a CIBC Economics study shows those working from home have saved a collective $170 billion due to cutting expenses on travel, commuting, child care and the like.
And then there’s the boom in both the stock market and real estate. Both are detached from economic fundamentals – i.e. reality – but disproportionately benefit those already better off.
In that regard, what’s going on today is emblematic of longstanding inequities in the economy.
Those disparities are also reflected in the latest MNP Consumer Debt Index released last week.
The survey finds the number of Canadians hovering close to financial insolvency has reached a five-year high. More than half (53 per cent) say they are $200 or less per month away from not being able to meet all of their bills and debt obligations each month, a whopping 10-point jump from December. This includes three in ten (30 per cent, up seven points) who report they are already insolvent with no money left at month-end to cover their payments.
A quarter of Canadians say they have taken on more debt as a result of the pandemic. This includes using their savings to pay for bills (20 per cent), using credit cards (14 per cent), using a line of credit (seven per cent), taking out a bank loan (three per cent), or deferring mortgage payments (three per cent ).
“We saw that pandemic-related financial relief measures provided some breathing room over the last year, but now we’re seeing a reversal,” says MNP president Grant Bazian. “The number of Canadians with virtually no wiggle room in their household budgets has reached a five-year high. The anxiety Canadians are feeling about making ends meet – or already being unable to do so – tells us we may eventually see an avalanche of households falling behind on payments or defaulting on loans, mortgages, car payments or credit cards.”
On average, Canadians say they are left with $625 after making their payments, down by $108 or 15 per cent from December. The decline is likely a reflection of the government aid programs, eviction bans, and debt holidays given by lenders that are now coming to an end.
“Some Canadians may be seeing their bills becoming due, even if they are not back to full-time employment,” says Bazian. “Even though some Canadians are spending less and saving more as a result of pandemic measures, others are being pushed further into the red, taking on more debt to stay afloat after job, wage, or small business loss.”
The mounting debt is nothing new, albeit more focused just now. In decline for decades, our standard of living has been propped up by massive amounts of borrowing – i.e. smoke and mirrors. Long gone are the days when rising productivity in the economy was shared among pretty much everyone – that was when the “rising tide lifts all boats” arguments still held water – replaced by most of the benefits going to the few.
While it’s true we have much more stuff than was the case in the more-prosperous postwar years, that’s an illusion brought on by there simply being more stuff to have. And readily available credit to buy it, and buy it now, patience no longer being a collective virtue.
That it’s an illusion is clear in the numbers. Average incomes have been more or less stagnant for more than 30 years. Debt levels, however, have exploded. Quarter after quarter, we hit new levels of indebtedness, both total household debt (which includes mortgages on increasingly out-of-reach homes) and consumer debt (i.e. credit cards, lines of credit)
Pandemic times notwithstanding, borrowing up, savings down – the trend isn’t new. Most alarmingly, we’re borrowing for everyday expenses – unable to pay the bills – not just for big-ticket items or even trinkets. Likewise, we’re raiding what savings we do have to cover day-to-day expenses.
Fueled by more than our consumer society’s lust for trinkets, the debt load is increasingly tied to everyday purchases as we try to deal with our sinking standard of living.
Studies have repeatedly indicated a trend, with more than half of indebted Canadians are borrowing just to afford day-to-day living expenses like food, housing and transportation. For these people, there is little hope for improved financial condition. Single-parent families, retired Canadians, and those with annual household income of less than $50,000 face a bleak financial situation.
This is no accident, however, as the middle class has been under assault for ages.
Studies in Canada and the U.S. show parents today are increasingly convinced their children will be less well off than they were. The figures back up that sentiment, as the great prosperity that flowed out of the postwar years in particular succumbs to constant attack.
The majority of us have seen real incomes decline. Studies show the gap between rich and poor is growing, even during the best of economic conditions. Canada’s richest one per cent are taking more of the gains from economic growth than ever before in recorded history.
The 1%ers have become the rallying point for a renewed look at inequalities and inequities in our economic system. Little wonder, as from the beginning of the Second World War to 1977, the income share of the richest one per cent dropped from 14 per cent to 7.7 per cent; by 2007 they’d made a comeback, as the richest one per cent held 13.8 per cent of incomes; since the late 1970s, the richest one per cent has almost doubled its share of total income; the richest 0.1 per cent has almost tripled its share of total income; and the richest 0.01 per cent has more than quintupled its share of income.
The average earnings of the richest 10 per cent of Canada’s families raising children were 82 times that earned by the poorest 10 per cent of families. That is approaching triple the ratio of 1976, when the ratio was around 31 times. The after-tax income gap has never been this high in at least 30 years, and it has been growing faster than ever since the late 1990s.
That trend has continued in earnest, as little was done to curb the excesses and outright criminality of the deregulation that spawned the 2008 global economic meltdown. The financial sector resumed business as usual, as seen by the large increase in the derivatives market – aka speculation. Instead of regulating the industry, eliminating some of the most egregious practices, governments in effect handed a blank cheque to those who caused the meltdown.
As with drops in corporate taxes and the growth of consumer taxes, the goal is to shift the burden to you. This will continue transferring wealth to those already making the biggest gains while contributing to the debt loads of middle-class Canadians trying to maintain their position as real incomes – both pre- and after-tax – continue to fall.
Short of countering that trend, talk of helping the middle class is just so much lip service. Perhaps the pandemic-fuelled debt crisis – which includes massive amounts of government borrowing – will spark a real change, but that’s not something worth betting on, especially with borrowed money.