Cost of Living4:42Why Canadians are ‘split-brain budgeting’
Like a lot of us these days, Jennifer Anchan is keeping a close eye on her budget. She buys from online marketplaces selling second-hand goods on Facebook and Kijiji, and has been going to the dollar store more often than before.
“I tend to shop around before I make a decision. So kind of, you know, buy what’s in season or buy what’s on sale. And I tend to use those items a really long time,” Anchan, a peace officer in Wetaskiwin, Alta., told Cost of Living.
And when she needed a car, she bought a used 2001 Honda Accord for $1,700 — in cash.
“It has a few scratches, has a few dents on the outside. But she’s got me through a lot of tough times,” she said. (Yes, the car is a “she” — Anchan named it Gertrude.)
But Anchan will splurge on travel, vacations and concerts with her friends when the time and price is right.
“If it’s something like a road trip or going camping or something, I don’t tend to budget for those types of experiences. I kind of just go with the flow,” she said.
According to new data from the Royal Bank of Canada’s spending tracker, Anchan is not alone. Its April 6 update said Canadians are cutting back their spending on discretionary goods like clothes and restaurants, but spending on non-essential services remained strong.
“Canadians continue to indulge in holidays despite higher flight prices and hotel costs,” the report reads, while also noting that grocery transactions did not significantly change.
The info comes with some caveats: RBC says its tracker uses anonymous data from credit card transactions of its own Canadian clients, so this is more a snapshot of RBC customers than of Canadians at large. That sample is considerable, as it can cover “tens of millions of weekly card transactions worth billions of dollars each week,” according to the bank.
Tandy Thomas, associate professor of marketing at Queen’s University’s Smith School of Business, says this kind of selective indulgence is known as split-brain budgeting.
“They’ll cut back on grocery spending. They’ll cut back on a lot of those everyday necessities to save money, and then they will spend lavishly on a vacation, for example,” she said.
I will drive a crap bucket til the day I die if it means I get to travel.– Jennifer Anchan
According to a recent survey from market research company Narrative Research, 56 per cent of Canadians had plans to travel in 2023. Out of those respondents, 25 per cent said they planned to go to the U.S., 24 per cent planned to travel within Canada, and 20 per cent had plans to travel to Europe.
There’s some evidence of split-brain budgeting happening in the U.S., too. In a poll of 2,200 Americans conducted for The Wall Street Journal earlier this year, three in 10 said they purchased a “luxury good” in the last month. About a third of those respondents said they spent more than $100 on the purchase.
WATCH: Dollarama profits soar as cash-strapped shoppers search for deals
Sales at discount chain Dollarama have jumped by close to 17 per cent as financially strapped Canadians search for bargains amid high inflation. But the bargain store chain hasn’t been immune to inflation either and is facing some stiff competition from rivals.
Scrimp and save to splurge
Anchan holds back on everyday spending to spend more on a narrower category of expenses. Those include personal care items like perfume, skin and hair care, but mostly on experiences like travel and events like concerts with her friends.
“My primary love language is quality time. So if it’s something that I’m doing with somebody else or if it’s an opportunity to spend time with someone — or spend time with myself, because that’s still just as important — then I would rather do that because I have something to remember.”
But even then, she tries to be as mindful as possible. She sleuths travel deals on an Alberta-based deals forum.
“I’m generally the type of traveller that my destination is whatever’s on sale,” she said. “I’ve flown to China, Estonia, [the] Netherlands — all $500 round trips.”
‘Revenge spending’
According to Thomas, a split-brain budgeting trend is unusual at a time like now, where many Canadians are feeling the financial pressure of high inflation and high interest rates.
“These are not normally the situations where we would see consumers saying, ‘screw it, I’m going to spend all my money on a lavish vacation,'” she said.
But the years-long pandemic has shifted many of our priorities and needs, especially once lockdown policies and travel restrictions were relaxed.
One term might be able to explain it, said Thomas: “revenge spending.”
“Like [they’re saying], ‘I couldn’t do all this stuff in the pandemic, and now I’m going to do it all. Come hell or high water, I’m going on this trip, I’m going to buy this stuff. I’m going to do this thing.'”
Some people, Thomas said, may have been saving money they regularly spend on travel during the pandemic. Now that many travel restrictions have been lifted, they can spend their “little pot of gold” that they amassed in the past few years.
That doesn’t describe everyone’s situation, of course. “There is a group of consumers who struggled tremendously financially” and don’t have the luxury of indulging at all, she said.
Thomas pointed out that not all the travel spending may be a “lavish vacation” — it could also be trips to see family they haven’t been able to visit for quite some time.
Anchan is going to India soon to do just that; she last visited family there in very early 2020. And if you ask her whether it’s worth buying second-hand goods and driving a beat-up car to afford it, she’ll give you an unequivocal yes.
“I will drive a crap bucket til the day I die if it means I get to travel,” she said.
