If you’ve been following Canadian news lately, the current state of our personal finances looks dire:
- Canadian consumer spending is outpacing income growth
- We are in debt up to our eyeballs and partying like drunken sailors from the year 1929
- The bubble is about to burst
And yet, I stumbled upon an article in a major Canadian publication that profiled five families, all with incomes well above the six-figure mark, who are “struggling to make ends meet.” That’s right, upper-middle class and making ends meet. You’ll have to excuse me if I’m unable to keep a straight face, hearing that. I’m not the subject of a sob story, but I come from a single-parent home that barely scraped by on one income that fluctuated monthly. There was no private school, nor were there multiple luxury cars (in fact, the one car in our household had a noisy muffler and made us the butt of jokes when we drove it); no dinners out, and certainly no fine wine (or even mediocre wine, or table wine).
In fact, even the two-parent homes in my old neighbourhood didn’t indulge much. Perhaps it was my blue-collar upbringing but, to me, a family trip to a rollercoaster park with a cooler full of lunch and snacks constituted an exotic vacation. The families that went to Florida every winter were richer than Donald trump. And who needed $200-per-month cleaning ladies when there were us kids around to do the grunt work?
Nowadays, monthly budgets consisting of $1,000 in organic groceries, $800 in wines and $10,000 yearly vacations mean that many affluent people (sorry, they’re affluent, not middle-class or “just getting by”) are splurging on things that were once considered luxuries. And yet, there are no retirement funds, savings funds or RESPs for the children — all things my “working class” community worked towards. And achieved.
How did Canadian society get to this point? Less than one generation ago, it was assumed that if you wanted something, you saved for it. Luxury items were mostly for the 1%, or even the 0.5%; while aspirational, they were not even in the realm of reality for most of us. How and why do my friends purchase condos at 5% down, paying $2,000 a month — more than their parents’ monthly mortgage — and vacation in far-flung places like Iceland and Thailand twice a year, on $50,000 salaries? With some help from Mom and Dad? Maybe. With cheap available credit? For sure. With major lifestyle inflation? Definitely.
Lifestyle inflation occurs when your expenses grow as your income grows. When I was a broke student, I rented a flat in a university shantytown and lived off of Ramen noodles and water. “Going out” meant $1.75 beers in a bar that smelled a toilet. At any given time, I had less than $20 in my bank account. Ah, those were the days! Shortly after I graduated and landed my first professional job, I moved into a one-bedroom apartment in a more upscale part of the city, living off of Whole Foods groceries, wine and gourmet take out. “Going out” meant $100/night, factoring in cab fare, a quick bite and cocktails in an exclusive club. At any given time, I had less than $20 in my bank account. Do you see what I’m saying? I was just as broke working full-time as I was when I was a student. Welcome to lifestyle inflation!
From the young professional, fresh out of college, to the 40-something entrepreneur and executive, lifestyle inflation is an affliction that negatively) affects anyone and everyone. Having large financial obligations, huge debt and no savings when you’re over 40? A recipe for disaster. As I discussed in my Slice series Personal Finance Bootcamp, all it takes is one unexpected emergency and the unprepared person is well on their way towards financial disaster.
Suffering from lifestyle inflation? In my next post, I’ll give you some actionable advice on how to overcome this terrible disease. Stay tuned!
Written by M. Alice Allen