Many people spending savings, going into debt, says credit counsellor

A financial literacy and credit counsellor says many of her clients are going into debt or spending savings to make ends meet as prices for everything from gas to food to shelter continue to rise.

Canada's inflation rate rose to a new multi-decade high of 5.7 per cent last month, the highest it's been since August 1991, according to Statistics Canada.

Pamela George said people she counsels are going into debt through credit cards or lines of credit, or dipping into savings to make up for the budgetary shortfalls they are facing.

"It's normal for most of us that if the credit card bill comes and you can't afford to pay it with your own money, just go to the line of credit or if you can't afford something, you put it on the line of credit," she said.

"It is so normal for us to do that that a lot of us don't see that line between what is our money and what is the bank's money."

George said the recent rise in prices isn't necessarily what caused the issues her clients face, but it is exacerbating the problem.

"It's so sad to watch this. As it is, they have been struggling since 2020, some of them before that," she said.

"And now with the higher prices, they are just having a really difficult time."

How did we get here?

Energy prices were a major factor in the increase, as the ongoing crisis in Ukraine was followed by a steep rise in prices during the month and into the next. Retail gasoline prices jumped by 6.9 per cent in the month of February alone, and were up by almost a third compared to the same period last year.

Mario Seccareccia, an economics professor at the University of Ottawa, said there are many factors at play and the current rate of inflation didn't come out of nowhere.

At the end of the day, we got to eat. We have to have shelter. Focus on that now.— Pamela George, credit counsellor

But he said the rise in oil prices — which affect other costs, like heating and transport — is a big contributor.  

Statistics Canada cited "geopolitical conflict in Eastern Europe and the Middle East" for the higher pump prices, "as uncertainty surrounding global oil supply put upward pressure on prices." 

But the inflation numbers released Wednesday don't even include the spike observed in early March, when oil briefly topped $130 a barrel.

Seccareccia said in the past 80 years, Canada hasn't had many spikes of inflation, but global events that disrupt the supply side of the economy often drive those changes.

"Right after the Second World War, we had the demobilization of the troops and everything else coming back. You had a lot of supply constraints, problems in Canada, not unlike the kind of stuff we're seeing now in terms of supply chains and all that. After the war also they lifted the price controls that exist during the war, and we had some pretty high jumps in the inflation rate at the time."

How do we get out?

Looking at the big picture, Seccarecchia said he doesn't think raising interest rates beyond a two per cent rate will solve the problem.

"We're trying to raise, in this case, interest rates to slow down demand when the real cause is not the demand side. It's a kind of supply side sort of problem," he said.

He said raising interest rates is akin to using a hammer to kill a fly, and the solution needs to be more focused.

"Across the board you're going to be hurting a lot of people, households that borrow a lot for all kinds of reasons, even on your credit card," he said.

"But also businesses, they borrow … you are going to hurt these people or these companies or whatever. So that's not a solution the way I see it."

Seccarecchia said he thinks the way out will involve co-operation, and a deliberate move between government, workers and businesses to get wages up to meet inflation, but not so much that businesses are squeezed.

There are also areas, like housing, where he said direct and specific moves, like high capital gains taxes on property investments and limiting the number of homes someone can own for investment purposes could have quick effects.

Basic needs must be met

For many of George's clients, thinking about the future is out of reach right now.

"If you can't put food on the table, if you can't afford your grocery bill, you can't afford rent and your mortgage, really, you shouldn't be putting energy in worrying about retirement," she said.

"I know it sounds weird hearing that from a financial literacy counsellor, but at the end of the day, we got to eat. We have to have shelter. Focus on that now."

For the people just trying to get through the next day, week or month though, George said not to think too far ahead.

"We're going through a lot. This has been two years, two years from hell," she said.

"We're exhausted, we're battling with mental health issues … if we have savings, now's the time to use it. I hate to say that because again, with my training, but you can't worry about holding on for the future again when you can't even eat right now."