How we got a travel boom while costs balloon for families

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Are you as curious as I am about how the stories about household financial pain square with high levels of spending on travel and more?

In the past six months, the focus in personal finance has shifted from counting our investing and home equity gains to documenting the pain level in households adjusting to inflation and rising interest rates.

The narrative has flipped as the result of surveys like the one by National Payroll Institute showing that 11 per cent of 3,033 working people surveyed were spending more than their net pay. That’s the highest level ever recorded in the 14-year history of this survey. According to the latest LifeWorks Financial Wellbeing Index report, almost three in 10 people are worried about covering basic living expenses.

Elsewhere in the economy, spending remains at elevated levels. The latest Consumer Spending Tracker from RBC Economics found that total spending by bank clients on their credit and debit cards levelled off in August at levels well above pre-pandemic levels.

Carrie Freestone of RBC Economics says spending on travel and accommodations alone was up last month by 10 per cent over pre-pandemic levels, and that’s after accounting for inflation. She sees downside potential for consumer spending as a result of higher borrowing costs and some slippage in the very strong labour market.

“But the prevailing narrative for now is essentially that it’s middle- and upper-income Canadians who are still unleashing their pandemic savings,” she said.

Imagine Canadian households were divided into five segments, or quintiles, according to their income. Numbers supplied by Ms. Freestone show the highest-earning quintile accounts for almost 40 per cent of total disposal income, while the lowest two quintiles combined for 18.8 per cent of income.

This explains how there can be widespread financial stress and strong demand for hotels, flights and rental cars. Watch for declining spending on travel and other discretionary services in the months ahead. That’s a sign the effects of high rates and inflation are starting to affect everyone.

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Rob’s personal finance reading list

Variable rate mortgages rule

A case for choosing a variable rate on a mortgage instead of a fixed rate is made in this briefing on what’s happening with interest rates.

Want to own a house with your friends?

A new digital platform called Husmates aims to link up people interested in co-owing houses in expensive markets. Call me a skeptic on co-ownership. People have very particular ideas about their homes and raising their kids, which means lots of potential for disagreements among housemates. Even good friends may disagree.

Hit and run

What you need to know about making an insurance claim for damage that occurs in a parking lot hit and run. That’s where you walk into a store with a dent-free car and walk out to find fresh damage and no note from the person who hit you. Happened to me most recently in a grocery store parking lot in the north end of Toronto.

Global diworsification

It’s a basic tenet of diversification to include international stocks in your holders, along with Canadian and U.S. stocks. Problem is, stocks from outside North American often seem to drag down returns. A portfolio manager argues that investors should hang in there with international stocks and exchange traded funds or mutual funds

Ask Rob

Q: If registered retirement income fund money is invested in non-cashable guaranteed investment certificates, are there penalties or fees if withdrawals are needed to fund required minimum RRIF withdrawals?

A: Consider monthly-pay RRIFs, with the amount withdrawn per month calibrated to ensure you cumulatively withdraw the right amount each year.

Do you have a question for me? Send it my way. Sorry I can't answer every one personally. Questions and answers are edited for length and clarity.

We want to hear from you

Are you a young adult living with your parents to save on housing? Or are you a parent who’s letting their adult kids live at home if it helps them set themselves up financially? If you’d be up for a phone interview for an upcoming article, please e-mail Globe and Mail personal finance reporter Erica Alini at ealini@globeandmail.com

Today’s financial tool

An introduction to the federal grant programs that are available to people who set up registered education savings plans to help cover the cost of a child’s postsecondary education.

The Money-Free Zone

Presenting Willie Griffin’s Where There’s Smoke There’s Fire. A retro soul gem that gets right into your head, earworm style.

From the Twitterverse

Financial planner Jackie Porter on how to improve your credit score quickly.

What I’ve been writing about

• How we saved postsecondary students from the worst of Canada’s debt trouble
• Our other real estate problem – people have too much wealth tied up in houses
• How to duck a hidden fee charged by most online brokers.

More Rob Carrick and money coverage

Subscribe to Stress Test on Apple podcasts or Spotify. For more money stories, follow me on Instagram and Twitter, and join the discussion on my Facebook page. Millennial readers, join our Gen Y Money Facebook group.

Even more coverage from Rob Carrick:

• 🎧 Catch up on Stress Test: Is the middle class dead for millennials and Gen Z? • Gas prices are soaring. Are electric vehicles an affordable solution? • Crypto is booming, but should you invest? • How are young Canadians dealing with soaring rents? • Inflation is squeezing our finances. What can we do about it? • Is a hot housing market squeezing Canadians out of their small towns?
• ✔️ The housing file: How bad is housing affordability? Even a crash won't help • Sell the family home to lock in profit and then rent? Better not • Why young adults can't afford houses: Hard work got you more in the past than it does now • Five reasons you should not buy a house till you're at least 30 • Now more than ever, owning a house is not a retirement plan
• 📈 Investing: The 2022 ETF buyer's guide: Best Canadian equity funds • The 2022 Globe and Mail digital broker ranking: Does the zero-commission revolution flip the script on who's best? • With bonds sinking, conservative investors are waking up to risks they never saw coming • A five-step plan for dealing with the sad fact that almost every investment is falling lately • The best financial advice in advance of retirement? Work on your marriage • One-year GICs are the best deal in town for safety seekers • What to do if the financial plan you paid thousands for disappoints
• 💰 Your money: Are you prepared for the pandemic wealth boom to blow up in our faces? • This hard-working 24-year-old is nailing it financially. But where’s the happiness? • Who should and shouldn’t worry about the wave of rate increases this year, and what every stressed-out borrower should do right now • Don’t make this potentially costly assumption about the CPP Survivor’s pension