Thursday, February 07, 2008 - Do you spend too much?

From CBC News.

More than half of Canadians under 50 spend their disposable incomes without thinking about their financial futures, suggests a study released Thursday. I encourage you to go to to check out the resources that Mackenzie has setup. In particular the videos are quite funny and may hit a little close to home for some.

The Burn Rater Test

  1. Have you gone shopping and/or bought things to make yourself feel better?
  2. Have you spent money in your account near the end of a pay period, because you knew you were about to get paid again?
  3. Have you hidden purchases from family or friends, or told someone you paid less for something than you actually did?
  4. Have you bought things you wanted, without considering the longer-term impact of the cost on your personal finances?
  5. Have you entertained family or friends at home or at a restaurant more than you could afford?
  6. Have you used your credit card to buy something when you didn't have enough money in your bank account to pay for it?
  7. Have you avoided looking at your bank account or balance because you were concerned about how much money you've spent?
  8. Have you regularly bought things on the spur of the moment?
  9. Have you gone shopping (not including grocery shopping) two or more times a week?
  10. Have you focused on spending today ahead of creating a budget or financial plan for the future?
The Burn Rater spending test, commissioned by Mackenzie Investments, found 24 per cent of respondents under age 50 are overspenders and 32 per cent show overspending tendencies.The term burn rate refers to how quickly disposable income is spent. Questions included: "Have you gone shopping and/or bought things to make yourself feel better?" and "Have you spent money in your account near the end of a pay period, because you knew you were about to get paid again?"Dr. Sunghwan Yi, a professor of marketing and consumer studies at the University of Guelph who helped develop the test, said people who overspend have a hard time making ends meet and trouble saving for the future.

Researchers asked 1,169 adult Canadians to complete an online survey of 10 questions on their spending habits that could be answered yes or no. The polling was conducted by Decima Research in December.

A respondent who answered yes to up to three of the questions was considered a controlled spender, while anyone who answered yes to four to six of the questions showed overspending tendencies. Anyone answering yes to seven or more questions was categorized as an overspender.

The study found Canadians are busy shoppers, with 45 per cent hitting the stores, not including for groceries, twice or more weekly. More than half of Canadians admitted to being impulse buyers, while 37 per cent of respondents under 50 and 22 per cent of those over 50 said they have hidden purchases or told someone they paid less for an item than they actually did.
Many Canadians said they rely on retail therapy for a pick-me-up, with 60 per cent of those under 50 and 47 per cent over 50 making purchases to make themselves feel better.
And when they're spending, almost half of Canadians use their credit cards to buy something when they don't have enough money in their bank accounts to pay for it.

Young, middle-aged not planning for future

Thirty-seven per cent of Canadians said they are not planning financially for the future. Forty per cent under 50, and 21 per cent over 50, said they focus on spending today rather than making a budget.

Sunghwan said he was surprised by the findings, especially "the great divide between under 50 versus over 50 people."

On average, Canadians under 50 answered yes to 4.35 of the test questions, compared to 2.88 for those 50 and above. Only five per cent of respondents over 50 were considered overspenders.

The findings suggest younger and middle-aged people "tend to basically spend money without thinking about their financial future," Sunghwan told, adding they "don't seem to appreciate the fact that the retirement age is quickly approaching and this realization often comes as they reach the age of 50, but it's way too late.

"We need to really encourage younger Canadians to start saving money and to develop a healthy habit of saving and investing as early as possible."

Curb your spending

Sunghwan said the study showed a concerning pattern of young and middle-aged people focused "on now rather than the future."

He said the most important changes people can make to improve their spending habits and start saving for the future are creating budgets and using cash instead of credit, because "people tend to feel greater pain when they hand over cash than when they are using a credit card."

He also recommended that Canadians arrange for a set amount of pay be automatically transferred to their savings and investing accounts.

"This way you save first and use the remaining money as necessary, instead of the other way around," he said. And for the impulse shoppers, he said, "Try to walk away for at least 24 hours if you're about to buy something on impulse… during this 24 hours, you are likely to realize that the things you are about to purchase on impulse are not really that important."


mohican said...

Hat tip to wombatos for the heads up on the story. I really suggest everyone go check out the website. It is pretty funny.

Warren said...

Slick website, and a good way to approach it.

Despite being financially conservative, I found myself answering yes a few times and it made me think.

AndrewJ said...

That's is so pre "real estate always goes up" economics. Why bother saving when you can plough all your money into real estate. It's nearly impossible to save 20 percent of a 300 thousand dollar condo a year so do it the easy way and buy the condo.

Mark said...

Great article. Personally, I've been spending way too much over the last two years. I read a very challenging commentary in the USA Decay (while working in the States) that recounted the story of a writer who decided to boycott buying stuff for a whole year. He allowed himself only a few essentials such as music and books. I've gone the same route now for a few months, and have been trying to utilize only what I've accumulated thus far. It's a good feeling to go through the books, video games, movies that you already own and know that you are getting full value from them.

I also spent the last few months going through my wardrobe and starting to donate what I no longer wear (after 7 years of accumulation). Amazing how much useless clothing I own. Anyway, after that exercise, the last thing I want to do is buy something else!

It's amazing that we live in a world of such technological change, and yet we do so little with what we already have. For example, the average iMac has more music production power out-of-the-box than what the Beatles recorded the majority of their albums on. Yet, we are compelled to buy more and more entertainment STUFF to keep us occupied. If only we'd realize what we have in our hands and take full advantage of it. In the end, I think that's the key to being materially happy. :-)

Mark said...

And here's the article that inspired me if anyone cares to read it. :-)

LaLaLand said...

Thankfully I do not get any emotional or entertainment value from shopping.

In general I dislike shopping, but in spite of this I couldn't believe how much stuff I had when I got ready to move to Vancouver several years ago. I gave away a lot of things then and have tried to be very conscious of what I do buy now.

Mark: Good luck with your no buying experiment. If you need any comic relief you can always watch George Carlin's "Stuff" routine:

Mark Fenger said...

they missed

11) Do you owe more on your mortgage now than you did when you first purchased?

12) Have you ever refinanced your house so you could purchase a big ticket item you could not otherwise afford or so you could make ends meet in the short term?

13) Have you ever owed more than 4 multiples of your household income on a mortgage?

mohican said...

drachen - I like the additions. A person's approach to debt is just as important as their consumption patterns in determining how financially successful they are. The two concepts are linked of course.

patriotz said...

And if you just want to take the easy way out, Yahoo Finance tells you how to marry a millionaire