Interest rates are set to rise this year, and with this adjustment by the Bank of Canada looming, over 35% of Canadians have said it could be a move that pushes them into bankruptcy. This data comes from a recent poll done by MNP, one of Canada's leading accounting firms.
Those with a current standing of bad debt are the most vulnerable. Traditional debt servicing costs are insanely high and anything piled on top of this debt management is going to make the situation much worse. Some Canadians are in fact already feeling hindered to simply feed their families or pay for shelter. Even a small increase in that debt is going to have a significant impact on this cohort.
The report goes on to state that younger Canadians are much closer to the bankruptcy threshold, 49% of those aged 18-34 being on the brink. As many in this group have yet to pay off debts on burdens such as tuition, a vehicle or a home they are much more likely to be negatively affected by any rate adjustment.
The worry also doesn't stop there. Even those with a more stable financial status have stated they also feel uneasy about what's to come. An overwhelming 81% of respondents said they will need to be more careful with how they allocate their finances after the an interest rate hike.
Lack of financial literacy and a clear understanding of how interest rates work is also making the situation confusing for many. The poll also stated that over 25% of Canadians said they really do not have a solid understanding of how an interest rate adjustment would actually impact their current or future financial situation.
What's the take away from this situation? One surely is that financial literacy and education needs to be more a part of our everyday lives. The more people understand not only how these changes impact them, but also what actions to take to plan and allocate for the future, the better we all will be to handle any future adjustments.
Perhaps a great place to start would be for employers to take on more responsibility in educating their employees about how to manage their paycheques. Employers need to rethink their responsibilities to their employees and create a holistic work culture that addresses these new and changing economic circumstances. Employers are after all the ones doling out the cash, shouldn't they also be the ones helping those receiving it better manage how and where it's put to use.