What are your vices? That’s the question that kicked off the panel discussion at Credit Education Week’s Money Talks luncheon on November 13th. As we learned, nearly all Canadians admit to impulse spending, and nearly all admit to having a particular spending vice. That was just one of the findings of Every Dollar Counts, a study designed by Capital One Canada and Credit Canada Debt Solutions in celebration of Financial Literacy Month. Conducted September 2013, the survey was designed to uncover insights on how Canadians feel about their finances and how they (at least try to) make every dollar count. The findings were revealed at the luncheon.
No matter the profession, it seems few young professionals (YPs) have as much money as they feel they need, or as much savings as they feel they should have. The cause is a variety of reasons, from mortgages and wedding plans to lingering student loans… or even your love for your city’s amazing restaurants. The reassuring news is that if you feel out of control of certain spending habits, you are not alone. Apparently a majority of Canadians feel the same way, and the key problem is an inability to break free from bad spending habits. One of the main findings was that a staggering 76 per cent say that they spend too much money on certain objects, but have a hard time stopping the frivolous spending… especially when it comes to those ever-so-tempting vices.
The panel, hosted by Pattie Lovett-Reid (Chief Financial Commentator, CTV News Network) with panelists Nancy Icely (VP Capital One), Caroline Cakebread (Chatelaine and Canadian Investment Review) and Laurie Campbell (CEO, Credit Canada Debt Solutions), offered a candid and honest discussion about money, a topic often taboo at YP dinner parties. Admittedly, some amongst our friends talk about it, others don’t. To do so over lunch was rather refreshing.
Seventy-six per cent of Canadians have a spending vice. What’s defined as a vice? The one thing that spending vices have in common is an immediate yet fleeting gratification when purchased, yet they are things you really can’t afford – at least not routinely. Doing so is living beyond your means. Your vice is related to impulse and it can create a domino effect of shame and regret. Top vices of Canadians include going out for dinner (29 per cent), buying cigarettes (26 per cent), going out for lunch (25 per cent), clothes shopping (24 per cent) and buying lottery tickets (24 per cent). “Spending vices are a form of addiction,” said Campbell. “Impulse purchases may seem harmless in small doses but they quickly add up and pull you into a debt spiral.” For the typical YP, vices could range from that twice-a-day Starbucks habit to your weakness for Christian Louboutins. Campbell points out, however, that it’s not just about giving up that latte; it’s about accumulating wealth and building up your asset base. And you should start now.
It seems Canadians don’t regret the big things. Fewer Canadians have regret over big-ticket items, which typically require planning and saving. For example, only 9 per cent believe that they should have a cheaper house, and 15 regret not purchasing a cheaper car. Regrets vary among age group, with those under 30 citing more regret over things like drinks and dinner. If you often find yourself regretful, you may have just discovered your vice.
The Underlying Issues:
Campbell, who sees countless families in debt crisis, says that problems with finance are not about money, but about personal issues. “If you resolve these issues, you can resolve your money issues,” she said. Maybe you’re spending to fill a void, or perhaps your love for the finer things and status symbols are a reflection of a deeper insecurity. “There is usually a personal reason tied to poor spending habits and people who have a dysfunctional relationship with money, and that’s what it is,” agrees Cakebread.
Money and Relationships:
The survey revealed that people’s spending habits are greatly influenced by the people around them. Eighty-two per cent of Canadians in relationships say that they speak to their partners openly and honestly about money and one-third say the other’s spending habits have hindered them from achieving their financial goals. Nearly half of all couples don’t really have a good idea about the spending habits of their significant other. “It’s about communication,” says Campbell. “I’ve seen couples on the brink of disaster, I’ve seen the good, bad and ugly… but it’s all made worse with the lack of communication.” For her clients, this goes beyond hiding a pair of shoes; it means huge gambling losses, maxed out credit cards, and hiding large-scale debt. Lovett-Reid exposed that her and her husband have one account and balance the books together weekly. “We enforce spending limits, respect each other’s decisions, and ask permission out of respect when it comes to large purchases,” she says after revealing her new splurge on an expensive purse (which isn’t a vice, as she points out, as she can now afford it).
Money and Friends:
It’s expensive to be popular, especially when it seems to be somebody’s birthday every week or wedding each month. There is peer pressure when it comes to spending money when socializing. And our cities aren’t cheap either. Forty four per cent of Canadians say that friends press them to spend more than they can afford when going out. The panel identified the “dreaded birthday dinner,” the “dreaded wedding party invite” and, worse, the “dreaded destination wedding.” In the case of the birthday dinner, you know the drill: the bill is split equally among the group, but not after copious bottles of wine and champagne are ordered. After the bill arrives, 22 per cent of Canadians said they typically end up paying more than their fair share, while 6 per cent admit that they regularly don’t contribute enough. In terms of the wedding, while it’s flattering that a friend wants to include you in their special day, you can’t go broke in the process or you’ll never get married yourself. “In terms of a social life, there is pressure to keep up, and this is only perpetuated by social media,” said Cakebread. “People try to replicate ideals and have adopted a ‘live for today’ mentality.”
According to the survey, Canadians find it acceptable to avoid certain social situations that can put you in an awkward financial situation. It’s perfectly fine to be cheap, and others understand that. Only 19 per cent of the people surveyed, however, said that they felt comfortable talking about finances with friends and peers. “If you can’t afford it, talk to your friends about it,” says Campbell. “It may be comforting for your friends to hear those words too, as they will know they are not alone.” In terms of bridesmaid and groomsmen duties? “Have an honest conversation beforehand before you accept the gig, outlining your budget and expectations. Share a room, do it cheaply,” says Icely. In any relationship, communication is key: “We need to have honest, open conversations about money management. People need peace of mind,” said Campbell.
For those with spending issues, a credit card can be seen as a tool rather than a weapon. In the same vain as online banking, credit cards can actually help keep track of spending. In fact, 60 per cent of Canadians say that online banking helps in managing their finances. “Actually budgeting has never been so easy, thanks to the various apps and alerts to that are available,” says Campbell. Of course, you need to cut back in spending. The most acceptable areas to cut back spending include groceries (82 per cent), going out with friends (81 per cent), buying gifts (71 per cent) and planning your wedding (70 per cent). We’ll admit, keeping on top of our finances takes work. “It takes financial literacy and we can all play a role in it,” said Icely. “It requires using math and to accept it as a part of life in everything from managing a grocery shopping list to a mortgage.
How to make every dollar count (from Credit Canada Debt Solutions and Capital One Canada):
– Keep track of your spending over the course of the month and identify your spending vices.
– Develop a monthly budget that will help curb your bad spending habits.
– Find thrifty alternatives. i.e. If your vice is coffee, make it at home.
– Treat yourself once a month to your spending vice – you will appreciate it that much more.
– Think before you spend. Before you make an impulse purchase, think about how else you can spend that money.
Tips for financial success (from Credit Canada Debt Solutions and Capital One Canada):
– Share your financial goals with family and friends so that they can help you stay on track.
– Write your financial goals down and keep a log of your progress.
– Reward yourself when you make smart financial decisions to help you achieve your goal.
– Identify your personal money vices and develop a budget that will help you cut back.
– Organize plans with friends that don’t involve you spending any money.
– Shop smart and look for ways to make every dollar count.
Sound depressing? It doesn’t have to be; another often-untold part of the story is how money is used to empower people. “Responding to social media, advertisements, impulse choices and decisions is easy,” says Cakebread. “To not is empowering.” According to the panel, in fact, the most liberating words are: I can’t afford that.