Good afternoon, Madam Chair and members of the committee.
Thank you very much for the invitation to appear.
I am a sociologist, a professor at the Institut national de la recherche scientifique or INRS, and the Canada research chair in family financial experiences and wealth inequality.
In 2022, I did a study on close to 5,000 adult Quebeckers to document their debt. My work is largely based on the results of that study. I've also submitted my full research report to the committee for further reference.
I'd first like to emphasize the importance of distinguishing between debt and excessive debt, that is, debt that's become difficult or impossible to repay. It's really these situations that cause stress, even psychological distress and a decline in financial health, particularly due to the accumulation of interest.
My study shows that, despite the extent of household debt in Canada, most people are not dealing with excessive debt, but a sizable minority is. In 2022, 66% of Quebeckers were in debt, and only 10% of those debtholders were having a very hard time paying it off or were unable to do so. Another 18% of them struggled to pay it off on occasion. That's a pretty big group.
We need to understand what leads to excessive debt in order to implement effective prevention strategies. My results suggest that it's not just a matter of how much debt one carries, poor financial literacy or spending beyond one's means. The determining factor is also the context in which the debt was incurred.
Those struggling to repay have generally taken on debt, not as a planned strategic investment, such as buying a house, but to make up for a lack of resources often linked to a destabilizing life event. In these cases, debt is urgently used as a last resort to meet basic needs, often through high-interest credit products—we've mentioned them at this meeting—because people have no other options or they are unaware of their options.
My study more specifically identified three major situations that lead to this type of debt, which I call compensatory debt.
First is support for children and loved ones: 12% of indebted individuals, especially women, reported going into debt to finance parental leave because they had no access to child care or due to a caregiving situation.
Second, 11% took on debt to cope with job loss, and this was often coupled with health problems.
Finally, 4% said they took on debt to offset a combination of financial problems related to chronically low resources.
More than half of the people who took on debt for those reasons were struggling to pay it off.
To prevent excessive debt, we need to act upstream, in my opinion, by helping people be better able to deal with these situations without resorting to costly credit.
I could offer three main suggestions.
First, certain social programs should be enhanced, including family policies, namely child care services, parental leave, and support for family caregivers and, of course, programs related to job loss and disability.
Second, we should improve awareness of available programs and alternatives to credit during transitions that may lead to compensatory debt, such as the birth of a child, job loss or illness, through education and financial counselling that truly aim to connect with people when they are experiencing those situations.
Third, we must also recognize the real need for small amounts of credit in the short and medium terms among people with lower incomes or who are experiencing a significant loss of income. For many of them, it's really hard to save for basic expenses like winter clothing or emergencies. Also, it's almost inevitable that they will purchase these expensive items on credit.
However, for people with lower incomes, the supply of short-term credit is currently dominated by alternative sector lenders that are often more expensive and less regulated. Banks, for example, often exclude low-income people from their best offers, such as their rewards credit cards, while at the same time indirectly making them bear the costs—
