six facts about how canadians spend their money

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6 Facts About How Canadians Spend their Money


PREFACEoney is no longer just paper and metal, but while it has transcended its physical boundaries

through credit cards, debit cards, and other forms of electronic valuation, it is still treated the same to this day. Every two weeks when the pay cheque comes in the mail (or is deposited into a bank account), a decision is made whether to spend the money, save the money, or generally, perform a blend of the two extremes. As raises are given, promotions are earned, and jobs are changed, there comes a change in the wages one earns from their job. With this study, we attempted to discover how does a change in wages affect our spending habits? However, before delving into an answer, the word our must be defined. What is true for the parts is not always true for the whole. Individuals have their own unique spending habits paralleled with their personalities; however, a change in wages has a distinct effect on the spending habits of society. It is this distinct effect that this study is attempted to determine. The common thought is that as more money is accumulated, the more we will spend. Although it may be true for the overall economy, the demand for each good or service responds differently to the same change in wages. This study examines all sectors of the Canadian economy and further subdivides them to see how different goods respond to a change in wages. This type of study can only be done in capitalist or mixed-market economies as they are very responsive to the demands of the consumer. Canada possesses a mixed-market economy, allowing for capitalistic free market operations, while still retaining a level of government regulation derived from a socialist economic system. Most developed countries operate under a mixed-market economy, though countries like the United States cater to the capitalist end of the spectrum while certain European countries tend towards the socialist side. Within Canada, per capita wages vary by province, adding yet another facet to the spending habits of the population. However, spending was not examined on a by-province basis as it would have further complicated the study which already looks at over 10 15 different goods on a national scale. The data collected1 in this study spans 8 years, from April 1997 to April 2005 in monthly increments. For each year, the months of April and October were used as benchmarks as they are unaffected by holidays as well as being a transition months between seasons. This eliminated considerable extraneous variables, opposed to choosing other months of the year. Since this data is census data, there are no sampling techniques involved beyond simple data collection. Bias is also eliminated as all the data used in the study are factual numbers.1

The data was collected from Statistics Canada: ; the following tables were used: 382-0006, 2810028, 080-0900, 326-0020, 079-0001, 079-0002, 051-0001, 379-0019, 326-0001, 111-0001, 080-0018, 380-0001, 303-0018, 027-0007


6 Facts About How Canadians Spend their Money

GLOSSARYThe following terms are used frequently throughout the study and are required to fully understand the explanations, and examples contained within this book. CENSUS The process of obtaining information about every member of a population CONSUMER PRICE INDEX ( CPI ) A measure of prices produced by Statistics Canada on a monthly basis. The CPI measures the retail prices of a shopping basket of about 300 goods and services including food, housing, transportation, clothing and recreation. The index is weighted to reflect typical spending patterns. The change in a price index like the CPI is a measure of inflation. Increases in the CPI are also referred to as increases in the cost of living. CORRELATION ( Correlation Coefficient ) Indicates the strength and direction of a linear relationship between two random variables. The strength is measured by a correlation coefficient known as the r-value. It is calculated as follows:

DEMAND In economics, demand exists when a consumer has both the desire and ability to purchase a good or service. Demand is affected by the price of the good, level of income, personal tastes, the population, and government policies. The law of demand states that as the price of a good increases, the quantity demanded decreases. When studying sectors of the economy or countries, demand is referred to as aggregate demand, or the total demand of a population. ECONOMIC INDICATOR Economic indicators include various indices, earnings reports, and economic summaries, such as unemployment, housing starts, Consumer Price Index, Gross Domestic Product, retail sales, stock market prices, and money supply changes. They are used as a yardstick in measuring whether an economy is in a recession, or in a stage of prosperity. They are also used to predict future market conditions. GOODS Physically tangible objects that can be used to satisfy economic wants, including but not limited to food, shoes, cars, houses, books and furniture. Inferior goods are goods whose demand drops as the consumers income increases. An example would be microwavable meals. As people have more money, they can afford fresh food, and buy less frozen meals. -2-

6 Facts About How Canadians Spend their Money GROSS DOMESTIC PRODUCT ( GDP ) GDP is the value of total production of goods and services in a country over a specified period, typically a year. How much GDP grows from one period to the next is an indication of a country's economic health. It is calculated as follows:GDP = Consumer Spending + Government Spending + Business Spending + (Exports Imports) OR GDP = C + G + I + (X-M)

INFLATION ADJUSTED Using the CPI, prices can be inflation adjusted to account for a change in the overall price level which may increase or decrease the actual price of a good or service. Inflation is calculated as follows using the CPI:

Inflation =

Current Year CPI Base Year CPI 100 Base Year CPI

This equation provides the inflation rate between a certain period of time. For example, to find the inflation rate between 1997 and 2005, the Base Year CPI is the CPI in 1997, while the Current Year CPI is the CPI in 2005. To adjust for inflation between this period, you would raise or lower the price of a good by the percentage yielded by the equation.MIXED-MARKET ECONOMY

An economic system that incorporates aspects of more than one economic system. This usually means an economy that contains both private-owned and state-owned enterprises or that combines elements of capitalism and socialism. There is no one definition for a mixedmarket economy since each country can have varying degrees of either privatized or centralized control depending on their values or political platforms.PER CAPITA

Latin for Per Person; calculated by dividing a total by the population.TRANSFER PAYMENTS

The transfer of revenues from rich or have provinces, to poorer or have not provinces, in an effort to stabilize their economies. Territories are not included; they have a separate fund.SEASONALLY ADJUSTED

Data is adjusted to eliminate the impact of regularly occurring events due to the climate. There is no set calculation, however, a similar approach to inflation adjusting can be taken through the use of percentages.WAGES

A compensation which workers receive in exchange for their labor.-3-

6 Facts About How Canadians Spend their Money

TABLE OF CONTENTSFact 1 Spend, Spend, Spend But on What?

Fact 2 Territorial Wage Domination

Fact 3 Richer Consumers Does Not Always Mean Richer Companies

Fact 4 Expanding Wallets & Expanding Stomachs; an Interesting Correlation

Fact 5Money Cant Buy Happiness, But Giving it Away Must Have its Benefits

Fact 6Boom or Bust? Where is our Economy Heading in the Future?


6 Facts About How Canadians Spend their Money

Spend, Spend, Spend But on What?Monthly Per Capita Spending Breakdown

Percentage Uses of Average Monthly Per Capita Wages ($1324.60) 0% 0% 1% 11%

4% 74% 27% 1% 1% 0% 1% 5% 1% 1% 0%

Fig. 11 Fig.Other Mens Clothing Car Sales + Maintenance Food & Beverages Furniture Housewares Healthcare Sporting & Leisure Tobacco Jewellery Donations Restaurants Womens Clothing Automotive FuelSpending of Project Study

Figure 1 shows a breakdown of how, on average, monthly per capita wages are being spent by Canadians. The green area represents all types of spending examined in this study. The chart shows that Car Sales + Maintenance and Furniture expenses rank in the top 3 uses of wages in the study along side Food & Beverages. Despite appearing as possible anomalies, it is in no way surprising. Furniture and car purchases are large value purchases. While they are usually paid off in lump sums, for the purposes of this study, these lump sums were extrapolated over a monthly period which justifies their high percentages. Furthermore, cars require frequent maintenance. Depending on the make and year of the vehicle, as well as the extent of the repairs, costs can reach the thousands of dollars if not covered by warranty. Jewelry, despite being another large value purchase, is not bought frequently enough by the average consumer, and so its cost is spread over a larger time period. This data does not factor in the cost of shelter, or the amount invested by consumers as it was unavailable. It is important to note that the wages used to calculate the per capita average were pretax wages. Therefore, deductions according to the varying tax brackets were not considered in Figure 1, or anywhere else throughout the study.-5-

6 Facts About How Canadians Spend their Money