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Printed from The Vanier Institute of the Family's website at www.vifamily.ca. © 2007.
TRANSITION MAGAZINE Families and the Almighty Dollar 
Families and the Almighty Dollar "Across the country, as members of families gather at their kitchen tables, the important work of managing family operations unfolds in countless untold conversations: Has the mortgage been paid? ...Where can we afford to go for the summer holidays? ... Will the car last another year? ... How much money do we have in the bank? ... Can we contribute to an RRSP? ... The kids need new shoes. ... Running a household is an on-going task of planning, budgeting, accounting, saving and spending." -Clarence Lochhead, From the Kitchen Table to the Boardoom Table: The Canadian Family and the Work Place The Almighty Dollar certainly is a major preoccupation for families. If the truth be told, however, we don't always feel completely competent when it comes to managing our finances. It's hard to understand why we can't seem to get ahead, and even harder to do anything about it. And why is it that those money conversations around the kitchen table keep degenerating into arguments? This issue of Transition takes us to a deeper understanding of money: why making ends meet seems so difficult, how the changing social and economic trends of the late Twentieth Century are affecting families today, and how money discussions can bring family members closer together instead of building walls between them. To help us get a grip on where Canadian families stand financially, Roger Sauvé's article "Trends in Canadian Family Finances" analyzes the current precarious situation and shows how things have changed over the last few decades. By summarizing much of the research on Canadian family incomes, expenditures, savings and debt, Mr. Sauvé uses numbers to paint the big picture of family finances. In "Talking about Money," Ruth E. Berry takes us beyond the numbers to explore the feelings and values wrapped up in our financial affairs. Dr. Berry's article is required reading, especially for men and women who may be sabotaging their marriage through a lack of insight about what money really means to themselves and to each other. Talking about Money For most of us, our relationship to money is as interesting, confusing and contradictory as many of our other relationships. We are embarrassed if we have too little money and even more embarrassed if we have too much. We feel good when we give money away, and even better when we get something for nothing. And while we are as sensitive about our income as we are about other matters we consider private, we take a voyeur's pleasure in probing the incomes of others. Not only do we spend our work day making money, but many of our free-time activities revolve around money too. We "shop till we drop," complain about the cost of living, dream about having the money to retire, worry about our financial security, buy lottery tickets, pray to Lady Luck at a gambling casino, or collect play money at a game of Monopoly. Those who make money make headlines, financial planning is a growing profession, and our local and national newspapers have expanded their sections on business and money to meet reader demand. Much of our fascination with money stems from the fact that we cannot do without it, and are constantly being lured by the growing number of marvellous things we can do with it. Romantic vacations and cruises, new cars and computers-all can be had for a price. And, with the easy availability of credit these days, we can enjoy these temptations right now instead of first having to save the money to pay for them. Of course, major financial decisions have consequences for our family's financial future, and sometimes for our family relationships as well. Money and Relationships We so often hear that we are what we eat but, in even more essential ways, we are what we spend-and how we spend it. The consumption patterns and choices of individuals and families say a great deal about their priorities and values. For many years, the literature has been telling us that marriage and money are closely interwoven and that the major cause of marital dissolution is conflict over money. This still seems to be true, but it is difficult to separate cause from effect. Do money problems cause marital problems? Or do spouses with marital problems focus on the concrete issues surrounding money to avoid dealing with their bigger and less tangible areas of disagreement? Evidence does suggest that marital satisfaction increases with income and that income plays a significant part in quality of life. Nevertheless, other studies have shown that the size of income is not the most important factor. Rather, the couple's level of satisfaction with their income, and their perception of whether or not their future is secure, are better predictors of marital satisfaction. Many families have difficulty managing finances because they tend to focus on numbers instead of people. Consequently, efforts to manage the family finances are seen as a means of accumulating things, rather than as a means of experiencing feelings and enhancing relationships. Our finances are connected intimately with our feelings and relationships. If we fail to understand and discuss these connections, is it any wonder that talking about money can be a minefield? In a financial discussion we may talk about how much income each partner is expected to provide and how the money should be spent but, if we focus on numbers alone, the budget we produce will be unlikely to translate into a mutually satisfying financial management plan, even if it looks good on paper. To meet that goal, and to make good financial decisions, we have to take into account our own and our partner's feelings-the emotional overtones involved in what money and possessions mean to each of us. Understanding the other person, and remembering how important they are to us, can provide the impetus for finding a balance when weighing our own needs, our partner's needs, and practical financial considerations. Power and security are important emotional aspects of money. A woman (or a man) who does not have independent access to finances, through her own employment or other means, feels the loss of power and security when her relationship with a financially stable partner is threatened. Both partners will feel more powerful and secure in an egalitarian relationship in which they share the financial and non-financial burdens of the family, including the time demands of household work and child care. Communication about Money A recent Canadian survey found that more than a third of Canadians avoid discussing money matters with their families. The same survey revealed that 47 per cent feel money controls their lives, and 64 per cent worry about not having enough money in the future. In our society, communication about money seems to be problematic, yet necessary if we are to achieve satisfying relationships. One study has shown that, in marital relationships, communication with a spouse is a major source of satisfaction for women, although much less so for men. This suggests one possible reason why money discussions tend to be side-stepped: a woman who wants to increase her communication with her partner will likely avoid bringing up potentially controversial topics such as finances. The most essential activity in communicating about money is setting priorities based on what we really want from our money. What we want reflects our values and attitudes. Most arguments in families revolve around allocation and control issues that arise from the very activity of setting priorities. For the most part, allocation is a middle-class phenomenon. The many Canadian families who live in poverty have only enough to provide for their most basic needs. Setting priorities for wants is usually not an issue, simply because there is nothing left to spend. The rich, on the other hand, usually have enough not only to take care of the family's needs but also to satisfy everyone's wants. It's especially difficult for a couple to set priorities and oversee agreed-upon allocations if their relationship is strained or their communication skills are poor. Arguments about money are not associated with the size of family income, although some research suggests that when both spouses are in the labour force they're less likely to have intense disagreements about finances. (Perhaps these couples have less time and energy to devote to such arguments!) Spouses who disagree on finances also tend to disagree on many other areas of family interaction, such as religion, child-rearing, and the division of household responsibilities. In other words, the couple who share similar values in important areas of life will argue less often about money than the couple with conflicting values. Intergenerational Issues When we look at data on the cost of raising a child, we may feel vaguely perturbed that anyone would quantify these expenses. At the same time, many of us feel overwhelmed at the enormous amount of money involved, above and beyond the less quantifiable human costs in time and energy that go into raising a child. For many parents there are also costs associated with lost opportunities when, for the sake of their children, they forego work or educational upgrading, or turn down a promotion that involves too much time away from home or a move to another city. Children's needs may also dictate a family's decision to live close to schools, shopping or public transportation-which can add to the cost of housing. Not surprisingly, families with children at home are seldom able to save. And now, with more adult children living with their parents while attending university or college (and beyond), the years of financial dependency are sometimes prolonged well into adulthood. Transfers of money between generations occur at all stages of the life cycle but, like other aspects of money management, these transfers can be fraught with hazards for relationships. This is because money is often equated with love, self-worth, freedom, power or security. Many compulsive shoppers equate obtaining goods with being loved, and most of us feel more important if our job pays well. This kind of emotional equation, as common as it is, becomes destructive when taken to extremes: for example, if we try to compensate for feelings of inadequacy by living well beyond our means, or if we use money to manipulate others into giving us the love and respect we crave. Many older persons amass large sums of money because they do not want to be dependent on their children or the state for their care, and because they equate money with freedom. This is fine except that it may be done at the cost of restricting their expenditures for daily items that would enhance their quality of life. As well, their children and grandchildren, who could use help with a mortgage or college education at an early stage in life, may have to wait until long past the time of need to receive a sizeable inheritance. As families increase in complexity, through remarriages and new relationships, monetary transfers in the form of gifts, inheritances and allowances may become a source of dissatisfaction. Traditions, rules and values can be quite different in different families, so when two families unite through marriage, they need to clearly understand and respect the symbolic nature and the financial worth of such transfers. Counselling and Education When couples seek help from a family counsellor, conflict over finances is often part of the problem they present. Many arguments over finances are never resolved because money means something different to each spouse. Both men and women tend to bring to the counselling session culturally learned attitudes about money, especially attitudes that relate to gender roles. Despite the fact that women make up more than half the labour force, most men still expect to be the prime breadwinner, and this expectation is largely supported by our society. The husband's earning capacity is, he feels, a major affirmation of his success in life. The wife, on the other hand, is more likely to see money as a means of purchasing goods and services. These two ways of looking at money are fundamentally different. Financial counselling agencies can provide a valuable service to families not only in dealing with a crisis, but also in preventing problems from escalating to the crisis stage. With counselling, any family can learn to spend their money more effectively, and those who have suffered financial hardship can learn how to get back on their feet. Recently, in reaction to escalating rates of financial failure, Canada became the first country to make counselling mandatory before a person can receive a discharge in a consumer bankruptcy. Preliminary studies show that consumers who have undergone this process feel very optimistic that they will be able to improve their financial performance in the future. Significantly, many of them had never talked about money to anyone before the mandatory counselling. A consumer education component is also now a mandatory part of the bankruptcy re-education process. Consumer education and personal finance education modules in the public school system are exceedingly rare. Project Real World, an excellent project developed co-operatively by six Canadian provinces, provided five units designed to orient young people to the realities and opportunities of the marketplace. This resource has not been updated for several years, as competing curriculum demands have taken priority over educating our children for their financial future. Many schools have also de-emphasised home economics or family studies courses, which included components on financial management and consumer behaviour. The low level of economic literacy in our population makes many Canadians vulnerable to get-rich-quick schemes, pyramid selling, and fraudulent consumer practices that can lead to financial ruin. Consumer agencies offer unbiased information about products and services but, unfortunately, they are few and far between. Considering Alternatives Money is a resource with many substitutes, such as time, energy and human capital. As our society has turned to a service-based economy, we often forget that we used to wash our own cars, make meals from scratch, trade child care with others, and do our own income tax returns. These and many other alternatives to buying goods and services are still available to those who choose them. Voluntary simplicity as a lifestyle trend is a reaction against a society where we overburden ourselves with consumer goods and then spend most of our time and energy earning the money to pay for them. Those who practice voluntary simplicity have traded secure jobs, comfortable homes and unnecessary consumer goods for a pared-down life. These "down-scalers" emphasize the importance of enjoying life's small pleasures, building strong relationships with family and friends, and protecting the environment. The classic practitioner of voluntary simplicity is a well-educated, progressive-thinking risk-taker. Although simplicity may not be the path for everyone, it does make us aware of how important balance is in our lives, and it reminds us that there are alternatives to working too much, spending too much and rushing around meeting demands that may be insignificant in the long run. In Canadian families today, parents are concerned not only about providing for their own future, but also for the needs of their children and possibly elderly parents as well. The best kind of financial planning-whether it's to develop a workable budget for the present, or to organize investments and an estate for the future-involves discussions with all members of the family. Family conversations about money-with a focus on feelings and relationships, not just finances-can lead to meaningful plans for the future and maximum satisfaction from that scarce resource, money. To begin to understand what money really means to you and your family, you need to look at your values. Try this exercise to assess your own values and how they might differ from your spouse or other family members: Each person draws up their ideal budget, given the family's current resources. Beside each item in your budget identify the value(s) the item represents for you. What does it symbolize? (Examples: security, self-expression, freedom, love, power, status, esteem, success, self-respect, competence, intelligence, acceptance, excitement.) Next, get together and compare each other's budgets and the values behind them. Now your family can begin to negotiate whatever differences in values and budget allocations you've identified. Try to work together to develop a more creative budget-one that expresses who you are, as individuals and as a family. Most financial decisions must of course be made by the adults in the family, but try to consider children's preferences. Everyone should have a chance to voice their opinions and feelings about decisions such as whether the family will buy a second car or go on a holiday. Parents may find that teens, especially, are much more reasonable about their requests when they genuinely understand the impact of different choices. -Adapted from Family Connections, BC Council for Families Any surprises? With an exercise like the one above you may find out that certain values are more important to you, or to your spouse or children, than you ever realized. A significant difference in how you would each like to allocate the family money may mean that your values are very different, or it could just mean that you have different ways of fulfilling your values. For example, Jan's budget includes a large chunk of money for retirement savings, while Mark wants to put those same funds towards renovating their house. Security is important to Jan, and saving for retirement makes her feel secure. Mark's interest in renovating could also reflect an interest in security, as a renovation will add to the value of their real estate investment. In this case, Jan and Mark need only find a compromise in how they pursue a value that they both care deeply about. However, if Mark's reason for wanting to renovate is that he sees it as a chance for self-expression, then he and Jan need to work out a values conflict between security and self-expression. Discussing why these values matter to them will help them respect and appreciate each other's needs. From there, they can work out a solution they can both live with. Together they may even be able to dream up alternative routes to achieving both security and self-expression with the money available. Children may be priceless, but they're also pricey. One estimate is that the first nineteen years (newborn through age 18) cost almost $160,000-a price tag that does not take into account the income that parents forego if they leave the labour force to stay at home with their children.
Prepared by The Vanier Institute of the Family. Source: "The Cost of Raising a Child: 1998," Manitoba Agriculture. Note: These costs should not be used verbatim in any legal proceedings. Naturally, any estimate of the amount of money needed to give a child a good start in life must involve very imprecise accounting. How much it costs to raise a child in Canada depends on many factors to do with the child's individual needs, the family's circumstances and values, and the community in which they live. Something as seemingly trivial as choosing disposable diapers instead of cloth diapers can raise parents' costs by more than $1,400 over a baby's first two-and-a-half years. The figures here, calculated by the Home Economics Section of Manitoba Agriculture, are based on the needs of an only child. Having a second child does not automatically double all of the costs. Normally, many clothes, toys and baby equipment can be handed down from one child to the next. And a big brother or sister who babysits a younger sibling can help reduce child care costs. On the other hand, a larger family may need a larger home and vehicle. Child care is by far the single largest expenditure, estimated at just over $52,000 for twelve years of licensed day care. However, the amount parents actually pay for child care varies widely from family to family. One family, with a parent at home or an available grandparent, might spend next to nothing on child care. Another family may pay a private nanny much more than $52,000 over their child's early years. For families who fall between these two extremes, child care costs vary according to the type of facility, the amount of time the child spends in care, and whether or not the family qualifies for a subsidy. Supporting a child with health problems can add to a family's expenses. For example, prescriptions are not included in the health care estimate. A significant disability would affect many, if not all, of the other expenditure categories as well. Manitoba Agriculture's allowance for "recreation, reading, gifts (to others) and school needs" provides only "the basic needs for the well-being of a child." Recreation costs can easily double or triple for a child involved in "expensive interests, such as private music lessons, dancing or gymnastics, competitive hockey or ringette." The average middle-income family with one child, two parents in the labour force, and their own house, spends about 15% of everything the parents earn to feed, clothe, house, educate and care for their son or daughter. If the family has two children, they spend almost a quarter of their gross family income on the children. And families with three or more children invest almost a third of before-tax income on the children. Still, there are a few financial benefits to being a parent-particularly Revenue Canada's Child Tax Benefit and Child Care Deduction. Also, as children grow older, they may begin to work outside of the home and contribute to the family income. Ultimately though, neither the costs nor the benefits of parenting can be measured in dollars. Few of life's endeavours are as demanding, and very few can match the joy and fulfilment of nurturing a young life into adulthood. Making Ends Meet: How Families Contribute to the Economy The efforts of families to make ends meet-to finance and manage their households-is important work. Expenditures on food, clothing and shelter provide basic needs. Expenditures on transportation allow families to participate in a wider social life, to move to and from their jobs, and to exchange goods and services. Expenditures on educational materials promote and enhance learning in the home. Expenditures on recreation and social activities contribute to healthy living and enrich people's lives. And expenditures on life insurance build security and protection for loved ones. The efforts of families to make ends meet are important for the larger economy. A huge amount of money flows through the conduit of family, generating an enormous amount of economic activity. The expenditures of Canadian households amount to some $400 billion per year. Considering that eight out of ten Canadians live with their families, it is no exaggeration to say that the family is a basic economic unit. When individuals spend, most do so as members of families. The decisions families make on where and how much to spend are critical to the functioning of the Canadian economy. A mere two-percent decline in family expenditures represents $8 billion, an amount equivalent to the income from 200,000 jobs, each paying $40,000 per year! Paying for all those expenditures requires an income, of course. The connection between the world of family and the world of employment is strong, and in some senses inseparable. It may be obvious, but it is worth stating: jobs are important to families, and families are important to jobs.
-Text and chart adapted from the book, From the Kitchen Table to the Boardoom Table: The Canadian Family and the Work Place, by Clarence Lochhead. Publisher: The Vanier Institute of the Family. Trends in Canadian Family Finances Times are tough. But are family finances today really very different from a few decades ago? This report paints a broad, long-term picture of how families have fared financially through much of the last half century and especially during the last quarter century. The use of 1996 constant dollars for all years eliminates the impact of rising prices by enabling a comparison of incomes, expenditures, savings and debt in terms of what the dollar's purchasing power would have been in the year 1996. Background Trends It is important to set the context within which long and medium-term change has occurred in Canada. Among many possibilities, four key trends have had major impacts on overall family finances:
A Few Interesting Relationships As you will see, the financial life of families has not followed a straight and simple path. A few notable and eventful time periods stand out:
Are Canadian families in bad shape (stagnant incomes and low savings) or are they in good shape (record net worth)? Many analysts are concerned. Some suggest the current situation points to another recession in the near future. There are those who believe we should stop looking to family income gains as the key predictor of expenditure growth and switch to net worth as a better indicator. Others suggest we stop looking at the old savings rate and start looking at the change in net worth from year to year. One danger of looking at net worth is the degree to which wealth is concentrated in relatively few families: over two-thirds of all wealth is held by the richest 20% of families and almost half of this wealth is held by the richest 10% of families. Regrettably, there is no clear-cut answer to the question "Are Canadian families in bad shape?" If you ask Canadians themselves if they are satisfied with their financial situation you'll get a "yes" from most people-although not from as many as in the past. According to an ongoing survey, when Canadians were asked such a question back in 1975 and again in 1980, roughly 85% felt that they were financially satisfied. However, by 1995, only 72% said they were satisfied. Family Incomes Stagnant Since Early 1980s The longest data series available on family incomes goes back a half-century. It measures incomes before income taxes. In 1951, the average family had a total income of about $3,500 in terms of actual dollars received at that time, or $22,743 in terms of constant 1996$. This family income measure increased sharply to almost $56,000 by 1980. The path since then has been flat with large swings brought on by recessions and recoveries. The early 1980s recession caused incomes to dip until 1983. The subsequent recovery then caused incomes to increase to almost $59,000 by 1989. The cycle started again with the early 1990s recession causing a dip to 1994, followed by an increase to about $56,600 by 1996. In other words, the 1996 average family income remained below the 1989 peak and was only $600 above the 1980 level. Preliminary numbers suggest that family incomes declined again in 1997. The average income per person living in these families rose from about $6,000 in 1971, to $17,000 in 1980, to $18,900 in 1989 and down to $18,400 in 1996. Most Families' Income Declined in the 1990s
The Rich Get (a Bit) Richer The way income is distributed among households is important from a public policy perspective.
Younger Families More Likely to Suffer from Low Incomes Statistics Canada classifies some families as being in a low-income situation. (Some people call this poverty. Statistics Canada warns against such usage, but the fact is that most of the households in this group do live in poverty.) In 1996, a two-person household in a city with a population of at least 500,000 was classified as low-income if it had a total income of less than $21,414 or $10,717 per person. The proportion of low-income families declined in the 1970s but there has not been any sustained improvement since then. The percentage of families with low-income was 13.2% in 1980 and 14.5% in 1996. The percentage of children under the age of 18 living in low-incomes families rose from 15.8% to roughly 21%. The more interesting developments relate to family types and age groupings.
Fewer Wages and More Government Transfers Wages, salaries and self-employment earnings form a shrinking share, but remain the major source, of family incomes.
Household Expenditures Sensitive to Economic Conditions Consumption expenditures per household have trended upwards but have done so in a highly cyclical fashion. Consumer spending is very sensitive to the business cycle and the business cycle is not dead. Expenditures per household averaged just above $34,000 in the late 1960s and then jumped quickly to reach $40,000 by 1979. The recession of the early 1980s caused expenditures to dip by 9.5%. The subsequent recovery helped establish a new peak of $41,600 by 1989. Again, the early 1990s recession caused a dip of 9%. By 1997, average expenditures per household were still 3.5% below the 1989 peak and only 0.5% above the 1979 peak. The swings in average expenditures have been more volatile than the swings in average family incomes.
Family Spending Patterns Have Changed Total current consumption, as measured by the Family Expenditure in Canada survey, shrank from 79.5% of total household budgets in 1969 to 69.1% in 1996-down 10.4 percentage points. The portion not allocated to current expenditures is absorbed by income taxes, investment in financial security and gifts and contributions. In 1996, income taxes were equal to 22.4% of total family budgets compared to 13.6% in 1969. Income taxes per household in real terms increased from about $5,700 in 1969 to $12,500 in 1996. The percentage of the household budget allocated to food declined from 18.8% in 1969 to 12.2% by 1996. The portion of total spending earmarked for clothing was cut by more than half between 1969 and 1996. Other very significant declines were evident for the purchase of furniture and equipment, smoking and alcoholic beverages and medical care. Smaller declines occurred for transportation and personal care. Significant increases occurred for shelter, household operation and recreation. The near doubling of the miscellaneous category is due to greatly increased spending on games of chance. Poor Households Spend Relatively More on Housing than Rich Ones The poorest 20% of households now allocate almost one-third of all expenditures directly to obtaining shelter and this is up by 8.5 percentage points since 1969. The richest 20% of households allocate about 13% to shelter, up only a bit from 1969. Personal income taxes now comprise over 30% of the total expenditures of the richest 20% of households-up from about 20% a quarter-century earlier. The proportion allocated to taxes by the poorest 20% increased over the period but remained under 3%. Both groups now allocate more to financial security, with the richest 20% of families putting aside about 6% of their budgets, compared to 1.6% for the poorest 20% of families. Both the poorest and richest families reduced the share of expenditures going to food, furniture and equipment, clothing, medical and health care and tobacco and alcohol. Families Don't Have a Cushion of Savings The personal savings rate measures savings as a percentage of personal disposable income, which is income after income taxes. During times of high unemployment, those who are unemployed tend to save less money, but those who still have jobs increase their savings because they are fearful of losing their jobs. According to a Bank of Canada study "This precautionary behaviour more than offsets any dissavings by the unemployed in the aggregate. Thus, economy wide, when unemployment rises, the savings rate tends to rise as well; when unemployment falls, so does the savings rate." As the economy improved following the recession of the early 1990s, the traditional personal savings rate has fallen much lower than expected: the rate was down to less than 2% in 1997-the lowest on record. The 1996 rate was the third lowest on record. The record low savings rates suggest that the flatness in income growth so far in the 1990s may not have allowed households to increase savings. As such, a slowdown in the economy could cause consumers to pull back more deeply than in past recessions, given that the cushion of savings is very small. Net Worth is Trending Upwards Net worth is the difference between the accumulated savings and the debt of families. In other words, net worth equals assets minus liabilities. Some people call this "wealth."
Are Households Over-Extended? Liabilities and debt have grown much faster than assets. Several indicators suggest that the degree of financial stress is increasing for Canadian households. A July 1998 survey by Angus Reid found that 54% of Canadians were finding it harder to make ends meet, compared to 38% in 1989.
Whether or not current debt levels are at crisis levels may depend on who holds the debt. A mid-1980s household survey found that debt, as a percentage of assets, was highest among younger households. At that time, debt as a percentage of assets was 37% for households under 25 years of age, 29% for those aged 35-44, 10% for those aged 45-54, 5% for those aged 55-54 and less than 2% for households 65 and over. The weaker income trends among younger families suggests that an even greater share of the total debt may now be borne by those under the age of 45. The latest situation seems to be precarious and could worsen any slowdown in the economy. Household spending drops sharply during recessions. Higher debt loads could make the next decline even larger.
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