Historically high household debt and the rising cost of living are weighing on Canadians, with a recent poll showing that the use of Tax-Free Savings Accounts has declined.

The Bank of Montreal annual investment survey found TFSA usage has slipped to about 62 per cent, down from 66 per cent last year and below the 2018 peak of 69 per cent.

Paying off debt was the main reason almost a quarter of Canadians polled were not investing this year, the survey found.

“The results from this survey are understandable given prevailing economic conditions,” said BMO senior economist Robert Kavcic.

“Household debt is historically high, inflation has lifted day-to-day cost pressures, and high interest rates make paying down debt a compelling option that might be crowding out some new investment.”

Borrowing costs have risen 4.75 percentage points since the Bank of Canada first began raising interest rates, pushing the prime rate to 7.2 per cent.

Canadians now carry more debt as a per cent of disposable income than their counterparts in the United States, says a report from Morgan Stanley Wealth Management Canada.

Compared to the size of Canada’s $2.1 trillion economy, the value of outstanding mortgages has hit $1.96 trillion.

During the financial crisis of 2008, “U.S. household debt to GDP was approximately 100 per cent … not far off where Canada’s household mortgage debt to GDP sits today,” said Stu Morrow, chief investment strategist.

That’s not the worst of it. A mortgage cliff is looming in Canada as homeowners over the next few years are forced to renew at much higher rates.

Morgan Stanley says the potential increase in mortgage payments could climb between 23 and 27 per cent for most fixed-rate mortgages and much higher than that for variable-rate mortgages with fixed payments.

If Canada falls into recession and unemployment rises as interest rates remain high, some homeowners may face difficult choices, wrote Morrow in the Morgan Stanley report.

“Some Canadians may be forced to sell their home, extend amortization periods for several or more years, or ultimately lose their home as they may not be able to afford the higher carrying cost.”

Almost 70 per cent of the Canadians surveyed in the BMO poll said economic conditions were negatively affecting their finances.

Living expenses had increased $397 a month from the year ago on average, respondents said and more than half of those polled are spending less on eating out, travel and clothing.

Another poll by Toronto Dominion Bank found 36 per cent of Canadians who have lived here more than five years are feeling less positive about their financial outlook and 58 per cent expect inflation and the cost of living to their biggest challenges in 2024.

Relief may be on the horizon, says BMO Economics. Though most Canadians say the economy is hurting their finances, improving conditions “may pull the country back from the brink of a recession or mute its severity.”

“On a positive note, easing financial conditions into 2024 should support the economy, and expected rate cuts from the Bank of Canada starting in the summer would only help,” said Kavcic.

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Retail sales rebounded in December after falling the month before, data from Statistics Canada showed Friday. The early estimate for December said sales bounced up by 0.8 per cent, the biggest increase since April.

Economists, however, don’t expect the spending spree to last. The Bank of Canada’s consumer survey out last week showed “Canadians are increasingly feeling the pain of both inflationary pressures and higher cost of borrowing,” wrote Toronto Dominion economist Maria Solovieva.

Consumers said they plan to put off buying big purchases and look for bargains when shopping for essentials.

“This suggests that the need for accommodative policy will come sooner rather than later, despite the recent improvement in consumer spending and stubbornness of inflation,” said Solovieva.

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“Rolling over” registered assets from a deceased spouse to the survivor is a common strategy to defer taxable income and allow assets to remain in tax-preferred accounts, but certified financial planner Andrew Dobson says that doesn’t mean you get to add the deceased’s future contributions to your own.

Today’s Posthaste was written by Pamela Heaven, @pamheaven, with additional reporting from The Canadian Press, Thomson Reuters and Bloomberg.

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