I negotiate with Comcast frequently (most recently saving $200 over 6 months) – and that gives me the justification (or excuse) that I need to keep paying for it. That and I’m still able to maintain an 85% personal savings rate, even with paying for cable.

Why do I do it?

I LOVE live sports. I have ever since I was a child. If it wasn’t for my love of Michigan State basketball and football, the Detroit Tigers, and the Tour de France (all are exclusively on cable), I would have ditched cable long ago, without any regrets.

The Cost of Cable

According to CNN, the average cable bill is $75 per month and has been rising by 5% annually. Over time, the impact can be mind blowing.

When I ran the numbers a month ago on the lifetime investment opportunity cost of cable, I found that it could be anywhere from ~$600K – $4.2M.

If that isn’t incentive to quit the habit, I don’t know what is.

But how does one quit? And what is life like after?

Share Your Life After Cable Story

Many have successfully quit cable. I know you’re out there.

What I, and other struggling cable addicts, would love to hear from you is:

• How long ago did you quit?
• Did you relapse?
• Was withdrawal difficult?
• What alternative forms of entertainment did you turn to?
• What changes have you seen in yourself or your lifestyle since quitting? What is life like on the other side?

It’s OK. This is a safe place.

Related Posts:

• How to Cut your Comcast Bill
• Hey Comcast: Your Customer Service Still Sucks
• How to Get Rid of Cable

Yes, there is Life After Cable TV: Share your Story is copyrighted by 20somethingfinance.com without consent to republish.

That’s right – cable TV is a want. You would have a very hard time winning a debate on the argument that satellite or cable TV is a need.

However, most of us have justified the expense. Partly, because it comes conveniently wrapped in a monthly payment plan.

According to CNN, the average cable bill is $75 per month and has been rising by 5% annually, outpacing inflation due to content provider negotiations for more money per subscriber (which providers then pass along to customers).

Taking a look at Comcast’s prices,

• Digital starter, their lowest-tier digital cable plan costs $60.98 per month
• Adding HD DVR is another $15.95 per month
• Total: $76.93 (before taxes)

That may not seem like a lot, but when you compound it over many years and look at the opportunity cost, you start to see just how expensive cable TV really is…

The Lifetime Cost of Cable

What if, instead of purchasing cable, you were to get rid of cable and add your monthly savings to your investment portfolio?

What would you theoretically be missing out on, or paying over your lifetime?

To calculate, let’s assume:

• You start paying for cable at age 23.
• The starting price is the average price quoted earlier, $75, and there is inflation on the price of 5% annually (real cable inflation percentage).
• You continue paying for cable until the age of 80.
• We are using after tax dollars (which is what you pay for cable) that grow tax free in a Roth IRA.

We’ll then figure out the lifetime cost of cable at different investment return levels using the AARP investment calculator:

• 4%: $634,970
• 6%: $1,102,950
• 8%: $2,081,549
• 10%: $4,209,990

We’re looking at anywhere from $634K on the low end to $4.2 million on the high end! Considering that the average retirement savings per household in the United States is $18,000, the alarm bells should be going off.

This, of course, does not take into account that the average American watches 81 hours of TV per month, 972 hours per year, or over 55,000 hours per the 57 years we used in this post. What additional return in skill development, work, networking, or exercising could you gain from having an another 55,000 hours of life?

That’s only one common expense. Kind of scary.

Cable Discussion:

• Does this view of cable costs change your outlook on justifying it as an expense?
• How much are you paying per month for cable?
• Why do you keep paying for cable?

Related Posts:

• How to Negotiate a Lower Comcast Bill
• How to Cut your Comcast Bill
• Hey Comcast: Your Customer Service Still Sucks

The Lifetime Cost of Cable TV (Warning: you will Get Sick) is copyrighted by 20somethingfinance.com without consent to republish.

As we previously covered, at their simplest level they can be defined as:

What you need: the basic things that you need to survive and function effectively in society: food, heat/electricity, shelter, a means of transportation, clothing, communication, and water.

What you want: everything else.

The ‘what you need’ category can easily be muddled and wants sometimes get mislabeled as needs.

The ‘what you want’ category usually consists of things or services that are one-off purchases. They could range in price from something as cheap as a book to something as expensive as a car. And we’ll focus on these items in this post.

Some examples of wants include:

• a new pair of shoes to accent your wardrobe
• a tablet computer when you already have a laptop or desktop
• video games
• a treadmill
• a gym membership
• a new set of golf clubs
• the latest smartphone
• a new piece of furniture
• a DVD or BluRay

The problem with the purchase of most of these types of items is that we let our emotions take over. We convince ourselves that we will be happier, smarter, more attractive, thought more highly of, or better off in some way if we get that new item or service, which justifies the purchase.

Some of these ‘want’ purchases result from impulsive buying, but not always. Many ‘want’ purchases are deliberately planned out. We set out on a mission to buy something and we don’t stop until it’s bought.

A Method to Control your Wants

To control my wants, I have recently started documenting them in a way via a spreadsheet that invites rationality and cuts back on emotion. It also eliminates all impulse buying. Here’s how you can do it too:

1. Make a copy of this Google docs spreadsheet to edit (you must sign in to your Google account to do this). Screenshot above.
2. Any time you are about to buy something new, hold off on buying. Instead, enter what you want to buy on the spreadsheet, date it, give a future date to review (1 month out), give your reason for buying it, and research the alternatives (is there a cheaper or free alternative)?
3. Rate the item on how badly you want it on a scale of 1 (seems like a good idea) to 10 (absolutely must have it).
4. If you share finances with another, seek out their approval for the purchase.
5. Come back 1 month later to re-evaluate and either delete the item, or move forward on purchasing it if it still makes sense to you.

What are the benefits to using this method?

1. In documenting and waiting, you’ve effectively taken impulse and emotion out of buying. I am willing to bet when you come back in a month, you won’t want a number of the items you were thrilled about a month earlier.
2. By putting something on this list, you acknowledge it is a want and not a need. This is a skill worth building.
3. You will see exactly how many items you have been buying over time. This will be a real eye opener.
4. It can allow you to rank the items in order of priority. Buy only the things that will benefit you the most.
5. It will prompt discussion with loved ones vs. unspoken resentment after a purchase. It may just save your relationship.

Give it a shot and let me know how it goes!

Cutting Down on Wants & Impulse Buying Discussion:

• What tricks do you use to cut down on wants and impulsive purchases?
• Do you think the method I’ve highlighted will work for you? Why or why not?

Related Posts:

• Money Saving Products & Services
• My Budgeting Spreadsheet
• The Story of Stuff
• My Counseling Session with Mother Earth
• 25 Awful Things Better than Black Friday

How to Control your Wants & Impulsive Buying is copyrighted by 20somethingfinance.com without consent to republish.

It’s a complicated world out there and we are bombarded with information on a daily basis. When presented with advice or solutions that make our lives easier, we latch on. As a result, cliche advice that sounds good on the surface can transform into cultural memes. If heard enough times from numerous peers and the media, those memes become blindly accepted as truths.

Some of these cliches are deftly true, but others can be particularly dangerous when interpreted the wrong way. They can be universally strong, oversimplified and misleading, or just flat out wrong at times.

So, I’ve decided to start a series of posts break down and analyze some of the most popular personal finance cliches to determine if they are legit advice to follow or not. And then you can debate to your hearts content.

This will be the first…

“A Penny Saved is a Penny Earned.”

“A penny saved is a penny earned” is used to describe a scenario when a consumer has or will realize the benefit of a discount, promotion, or sale when making a purchase. It attempts to equate the act of saving money to having earned that money. And who doesn’t like earning money? So where is the debate?!

There is only one problem – as already stated, the phrase is used in the context of saving money on a purchase. With the exception of offsetting the future cost of needs, the reality is that you are saving nothing when you are spending money. In fact, you’re doing the opposite.

I fear that many blindly apply this advice as a justification for making purchases on wanted items that are on sale. And that’s dangerous.

While you chew on that, consider that the origin of this cliche is through a misquotation of a statement made in Ben Franklin’s Poor Richard’s Almanack, which Franklin began writing in 1733. The original phrase was: “A penny saved is twopence dear. A pin a day’s a groat a year.”

A twopence was a silver coin used in Britain in that era. A pin and a groat? Consider it a history class homework lesson.

So if we break down Franklin’s original statement, he seems to simply be making a currency comparison between a penny and the British twopence. Yet, the remodeled cliche has lived on and morphed into personal finance advice with a different meaning that everyone has heard and repeated.

There is no doubt that it is good to save money – but only in the context that it is money you would have needed to spend. Just remember that the next time you go to grab your groat.

Verdict? While it may seem rather innocent on the surface, this cliche can be misleading, and potentially harmful if transformed into purchasing motiviation.

Alternative Advice? “A penny saved is a penny saved. A penny earned is a penny earned. A penny spent is a penny spent.”

Related Posts:

• How to Calculate your Personal Savings Rate
• Personal Savings Rate by Country
• Your Personal Savings Rate Poll Results
• Money Saving Products I Use

Good or Bad Personal Finance Cliche? “A Penny Saved is a Penny Earned” is copyrighted by 20somethingfinance.com without consent to republish.

1. What you need: the things that you need to survive and function effectively in society: food, heat/electricity, a means of transportation, clothing, and water. I’ll even throw in basic telecom and insurance.

2. What you want: everything else.

The problem, of course, is that even in the category of things we “need”, there is a ton of grey area.

“Transportation”, for example, could mean a lot of things, based on an individuals interpretation. It could mean a pair of shoes, a bike, a bus pass, a subway pass, a POS car, or a $50,000 all-wheel drive luxury SUV that gets 15 miles per gallon.

“Food” could be translated into cheap bulk generic grocery purchases only or getting sushi for takeout every night and feeding Fido prime rib.

“Telecom” could be a $10/month prepaid plan or high speed internet, VOIP, and unlimited 4G on a brand new iPhone.

Justifying Our Purchases: Making Wants Needs

The end result is that most of us err to the market standard (which is ever-increasing), as determined by marketers and subsequently, our peers. We all strive for acceptance, we are social beings by nature.

Our brains are naturally hard-wired to do things like justifying upgrading from a serviceable car to a brand new base model. And then from a base model to a loaded model. We ask ourselves rhetorical questions in order to build a case for the justification (and soften the guilt after the purchase):

• “Why replace a radiator when the engine might go any day? I should get rid of this before it goes completely.”
• “Why get base model steel wheels? People want alloy wheels, and when I go to sell the car, I don’t want to have trouble selling it.” (side note: steel wheels are WAY more durable, providing a better driving experience and less tire wear)
• “I want to be safe in the winter, so I should get 4-wheel drive.”
• “If I’m going to spend this much on a car, I might as well get the color I want.”
• “The hybrid version gets 5 more miles per gallon. I want to help save the environment.”

Over time, these discussions in our heads tend to wear us down until eventually we give in and wants become needs. That common, and dangerous territory.

Cutting down on impulse purchases from the aforementioned “want” category is a key pillar of sound personal finance strategy (I’ll address in further detail in an upcoming post). But more importantly, perhaps, is turning the grey area in the needs category into black and white. These, after all, are the expenses that we usually pay for every single month. It’s a totally different game that requires a bit more effort and discipline.

Separating Wants and Needs

My best suggestion on how to do this is to go through this 4-step process:

1. Document your average monthly expenses in each category using this spreadsheet: If you’ve used my older budget spreadsheet in the past, you probably already have totals handy. It wouldn’t hurt to update them and plug them in to the new spreadsheet. If you haven’t already done this, credit card & bank statements should be all you need. It shouldn’t take more than an hour or so to do. Note: you’ll need to sign in to Google Docs to make a copy of the spreadsheet to edit.
2. How low can you go? You see what you are spending (column b), but how low can you reasonably take each category (column c)? Take justification out of this step – you need to be 100% honest with yourself in order to make this work (it won’t be easy). If you want a few suggestions, check out my list of money saving products & services that I recommend. I suspect you’ll find that food, transportation, rent/mortgage, and telecom are the areas where you will have the biggest discrepancy between your current spend and your lowest reasonable spend. The spreadsheet to help you track the difference, and annual savings. I would strongly encourage you to plug the monthly savings numbers into an investment calculator and assume an 8% annual rate of return for the next few decades to see the true financial opportunity lost.
3. Switch for two months. In each category, try switching to the lower priced alternative for two months, minimum. If you have a car, try biking/walking/busing/carpooling to work for two months. If you dine out a lot, try only cooking at home for two months. If you have cable, try going without it for two months. You get the idea. To prevent shock, try just one or two categories at the same time. It will be a life changing experience, guaranteed.
4. Ask yourself one question after the two months is up: “Is my financial independence worth compromising for the (fill in the blank higher cost) alternative?” Any time you try justifying making the jump to the more expensive alternative, refer back to the spreadsheet and this question.

The Long-Term Impact

Sacrifice is in the eye of the beholder. Some of the possible changes you could make may seem difficult at first – a huge sacrifice – but a year or two from now, you may have a completely different perspective. Who knows, you may just find out that you like your new found frugality.

If you don’t think this practice could have a big impact on your financial situation over time, consider this example:

You are 25 years old and spend $400 per month for auto payments for the next 50 years. If you were to instead go with a used car that costs you $150 per month (for a $250 per month savings) you’d save $150,000. If you invested that money and got an 8% annual return over those 50 years, you would have just shy of $2 million! That is much higher than the average retirement savings (just over $18,000), and most people will never get to that level. This example does not take inflation into account (I shudder to think what a new car payment will be in 50 years), which would further add to the overall cost. And this is only one common monthly expense.

Debatable sacrifice. Huge Payoff. That is the goal here.

Wants Vs. Needs Discussion:

• How do you separate wants from needs? What tips do you have from others?
• How much could you be saving per month, according to the exercise?
• What categories could you be saving the most in?
• What kind of purchase justification discussions have you had with yourself?

Related Posts:

• What is your Personal Savings Rate?
• Inheritance? Forget it
• 4 Keys to Saving On Groceries
• Two Paths to Financial Independence

Wants vs. Needs: How to Turn Grey Into Black & White is copyrighted by 20somethingfinance.com without consent to republish.

We knew going in that the average U.S. personal savings rate is a mere 5%. And last week we took a look at the personal savings rate by country and how Americans were seriously lagging some of their industrialized sistren (is that a word?) and brethren.

Over two hundred of you voted and I was impressed with the results (not surprised, because I knew you were all an overachieving bunch).

Here are the results!

Inside the numbers:

• There was almost a three-way tie for first between a 10-20%, 20-30%, and 30-40% personal savings rate (each receiving over 20% of the votes). That’s a pretty wide distribution, but great in that all are at least double the U.S. average.
• Very impressed to see that a whopping 43% of you are saving over 30% of your income and 90% of you are saving over 10% – blowing away the averages!
• 13% of you are saving over half your income. Great job to you folks!
• Perhaps, the most impressive statistic is that only 5% of you are below the national average (and 95% were above).

This highlights a few key things to me:

1. For the most part, especially compared to the average, you are all doing great.
2. I’m pleasantly surprised that more of you aren’t below the national average, since the twenties and even thirties are a time when so many people are trying to dig themselves out of student loan debt.
3. Perhaps debt is not the biggest concern on your minds. It might make more sense for me to gear content around boosting savings than getting out of debt.

Your Thoughts?

• Are you surprised, impressed, or shocked with these results?
• What is the spread between your personal savings rate and your desired personal savings rate?
• Is ‘sistren’ a legit word?

Related Posts:

• The U.S. is the Most Overworked Nation in the World
• Parental Leave Benefits by Country
• The Shockingly Low Amount of Retirement Savings per American
• What is Modified Adjusted Gross Income?

Your Personal Savings Rate Poll Results is copyrighted by 20somethingfinance.com without consent to republish.

As I highlighted last week before polling readers on their own savings rate, the average U.S. personal savings rate has been around 5% for the last few years.

That seemed pretty darn low. And it seemed even lower after I found out that percentage includes not only take-home savings and IRA contributions, but employee AND employer retirement contributions.

Yikes.

Naturally, I wondered how the citizens of our fine country stacked up against other industrialized nations.

I found an interesting chart from the Organisation for Economic Co-operation and Development (OECD), that highlights past and forecasts future personal savings rates by country for 24 of the largest GDP countries that publish this statistic.

In 2010, the savings rate from the most notable countries were:

• Australia: 9.3%
• Canada: 4.3%
• Germany: 10.9%
• Ireland: 19.3%
• Japan: 6.5%
• France: 16%
• Spain: 13.1%
• UK: 4.6%
• US: 5.8%

What can we take away from this data?

1. At Least Americans are not Dead Last

As bad as the U.S. personal saving rate looks, it’s not the worst. We came in 16th out of the 24 countries in 2010. We’re predicted to vault past the mighty Poland into 15th in 2011.

2. Canucks Like to Spend

Canadians have had a worse personal savings rate than Americans for the past 3 years. This is in line with the data I found around U.S. vs. Canada consumer spending. Quite simply, Canadians love to spend their money on crap that they would be wise not to.

3. The Economic Impact on Personal Savings is Substantial

The Irish had a whopping 19.3% savings rate last year – all the way up from 3.8% in 2008 (when the Irish banking crisis hit). Similarly, yet less dramatically, the U.S. personal savings rate jumped from 2.1% in 2007 (before the housing crisis) to 5.9% in 2009. I find it really interesting that when economic turmoil hits a country, personal savings rates in that country go up significantly. One has to wonder how much economies further suffer as a result of people hunkering down and reducing their spending.

4. The French Really Know how to Save

The French, who hit a 16% personal saving rate in 2010, have averaged over 15% per year since at least 2005. This makes them the most consistent savers of any industrialized country. That’s a bit surprising when you consider how high France income tax rates are (3rd highest).

5. The Danish do Not

The Danish have had a negative personal savings rate since at least 2005 and were the only country, on average, to achieve this feat in 2010. What’s the deal? Maybe their spending all of their earnings on Hasselhoff memorabilia. Oh wait, that’s Germany. No excuse, Danes.

Discussion on Personal Savings Rate by Country

• Do some of these findings surprise you?
• Do you feel better or worse about the U.S. personal savings rate after seeing this.
• What do you think the average personal savings rate should be in the U.S.?

Related Posts:

• The U.S. is the Most Overworked Nation in the World
• Parental Leave Benefits by Country

A Personal Savings Rate by Country Comparison is copyrighted by 20somethingfinance.com without consent to republish.

I had written a post on Get Rich Slowly in the past that highlighted how to cut your Comcast bill – and gave the actual chat transcript that cut my cost by 33%. Lately, I haven’t had as much luck with their live chat team. Perhaps part of the problem I’ve run into was that I had been getting discounted high speed internet (while still paying full price for cable). Then again, maybe they read that post and decided to “toughen up” the live chat team.

Sure, I could get rid of cable completely. But college and pro football is right around the corner and I’m an addict! So I decided to go back to my old method of getting a Comcast discount – a good ole’ fashion phone negotiation.

Before I go into the negotiation and what the result was, I’ll first highlight what my current package and price was:

1. Digital Basic Cable with HD DVR: $83/month (full price)
2. Blast Cable Internet (12MB/s): $30/month (discounted)

Total price: $113 per month.

How to Cut your Comcast Bill: Step-by-Step

I’ll now walk you step-by-step how I was able to get that down to $80 per month.

1. I picked up the phone and called their 800#: 1-800-266-2278.

2. I select option #4 (“thinking of discontinuing your service”), and option 2, immediately following (also “thinking of discontinuing”).

This should get you connected to a retention specialist, who have a little more power to offer discounts than other customer service reps, or so the theory goes.

3. I lead my negotiation with the competition.

Comcast fears losing customers to AT&T U-Verse, who is offering up some great discounted packages to new customers.

My discussion was almost identical to this:

• Me: I’d like to discontinue my service.
• Comcast Rep: OK, may I ask why?
• Me: Because I need to lower my bill and AT&T has some great offers for me.
• Comcast Rep: OK. Well AT&T doesn’t offer as many HD channels, but I can look to see what kind of package we may be able to offer you.
• Me: OK, I’ll hear you out.
• Comcast Rep: OK, so we have a package where you can get Comcast Digital Preferred (more channels that what I was getting with ‘basic’) plus high-speed internet (at a slightly lower, but still fast 8 MB/s) for $89.99 6 months. This is the price we offer new customers.
• Me: Yeah, but I don’t need more channels. Do you have a package with less cable channels? I don’t need that many.
• Comcast Rep: Let me check. <hold> We do not, but I can cut the $10 DVR fee to bring your total to $79.99. Would you like to do this?
• Me: Are you sure you don’t have any cheaper packages?
• Comcast Rep: Yes.
• Me: OK, please make the switch.
• Comcast Rep: OK, we can add on digital voice for $30.
• Me: No thanks (I have Ooma, and it’s free).

Score another one vs. Comcast customer service.

4. I Saved 30%!

I was able to cut $33 (30%) off my cable/internet package, while getting more channels and only a slightly slower internet speed, with one simple call. Over six months, it will save me $200, at which point, I will negotiate again.

5. Stay Congenial

I want to point out that I was friendly, yet confident with the service rep. It may sound cliche, but treat others as you would want to be treated and you will get better results. Act like a jerk, and you’ll strike out.

Cut your Comcast Bill Discussion:

• What did your Comcast negotiation look like? How much did you save and how did you get it?
• Comcast CSR’s: Now is your chance to tell all! How can customers get the best deals and how does Comcast set these policies (retention specialist can negotiate/others cannot). Please share! (you’ll remain anonymous, of course)

How to Negotiate a Lower Comcast Bill is copyrighted by 20somethingfinance.com without consent to republish.

I covered the last Netflix price increase back in December when they raised prices from $8.99 to $9.99 for the unlimited, 1-at-a-time plan. A $1/month price increase, particularly at a time when shipping costs were increasing, seemed reasonable. And I doubt they lost many customers over the move.

This time around, I’m not so sure.

Netflix is no longer bundling it’s DVD-by-mail and unlimited streaming options.

Before the price increase, you were able to get unlimited, 1-at-a-time DVD’s and streaming for a combined $9.99.

You’ll now have to pay $7.99 for each separately – about a 60% increase over the old plan if you get both.

The silver lining is that if you never used streaming, you will now only pay $7.99 for the DVD plan (a $2 decrease). The streaming-only price stays the same at $7.99.

From a Business Perspective…

I understand the desire for Netflix to want to separate the two services out from a revenue/profitability standpoint. They will make more money (if they don’t lose a significant amount of customers first). Investors agreed by bumping Netflix shares 3% after the announcement.

I decided to dig into Netflix’s annual report to find out why. One key to this puzzle can be found in the following statement:

Our business has and continues to evolve rapidly. In 2010, we passed a significant milestone with the majority of our subscribers viewing more of their TV shows and movies via streaming than by DVD. Going forward, we expect we will be primarily a global streaming business, with the added feature of DVDs-by-mail in the U.S.

My belief is that Netflix wants to separate the two completely so it can emphasize the streaming only option more to grow their subscriber base as it will undoubtedly lead to higher margins compared to DVD customers. I’m sure it costs much less to stream 4 movies a month than it does to buy, house, ship, and, return ship 4 DVD’s a month. This move is to push less profitable customers who were heavy users of the combined plan to one or the other plans (better yet, both).

It’s a margin game. That makes sense.

The Big But…

The problem I see is that Netflix’s streaming only option significantly lags behind when it comes to unique titles. If you want to stream last year’s summer blockbuster, you’re going to find it. If you want something a little more rare, you’re going to have to get the DVD shipped to you.

The lack of catalog is why most of their customers ended up in the streaming/1-a-month combo plan. And now Netflix will be charging those customers 60% more. And those customers are pissed (as evidenced by over 5,000 mostly outraged comments on their blog).

The danger in this move is that it might drive customers who wanted both DVD’s and streaming to find other options (i.e. the good ole’ library, Red Box, Blockbuster, Amazon, Hulu) or just cancel the service altogether.

My Personal Take on these Netflix Changes

Ultimately, I view any form of video entertainment as a luxury. Cable TV is a luxury, going out to the movies is a luxury, Netflix subscriptions are a luxury. This isn’t food, or fuel, or electricity, it’s video – and you have a choice.

If you don’t like the price increases, switch to one of the two plans or cancel altogether. If you select both, there’s really no room for complaint. It’s a luxury and having the choice of both DVD or streaming makes it even more of a luxury. As Netflix says in their statement: “members can easily choose to change or cancel their unlimited streaming plan, unlimited DVD plan”. You might be wise to take them up on that.

If you’re a Netflix customer, express your intentions in the following poll:

Related Posts:

• Netflix Review
• Hulu to Charge for Content
• How to Get Rid of Cable
• Why Comcast Customer Service Sucks

Dissecting the Netflix Price Increases: Time to Cancel? is copyrighted by 20somethingfinance.com without consent to republish.

Mint.com produced an infographic that highlighted Canadian consumer spending, with 2009 data found from Statistics Canada.

I thought that was cool… but, I’m not Canadian. So I wanted to dig up American consumption habits during the same year to compare to our friends to the North.

I had questions like:

- how much do Canadians spend on health care vs. Americans?

- how much do Americans spend on housing vs. Canadians?

- what are the overall consumer household spending amounts of both countries?

- who is more budget savvy?

- why are beavers so loveable?

I wanted answers, eh. So I went oot and aboot to find them.

Importance of U.S. vs. Canada Dollar

Before we look at those numbers, it’s important to note how much the comparative value of the U.S. Dollar vs. the Canadian dollar.

On June 30, 2011, for example, one U.S. Dollar could buy you $0.9645 Canadian. That is rather eye opening when you consider that as recently as 2002, the exchange rate was one U.S. dollar to $1.62 Canadian (the highest the dollar has ever been valued against the loonie).

2009 was an interesting year in that the U.S. Dollar peaked at about $1.28 CAD, but dropped to $1.05 by the end of the year.

Why does this matter? The dollar totals cited are in USD and CAD. On the surface it looks like the Canadians spent slightly more than Americans that year. However, when you factor in the exchange rate, that’s not the case. Canadians actually spent slightly less than Americans as many of the categories they spent on (transportation, food, and apparel) would have been directly impacted by the exchange rate. Canadian dollars were worth about $0.87 US, on average, over the course of the year. Here is a chart of the CAD vs USD to see what I’m talking about.

U.S. vs Canadian Spending

The table below shows the comparative spending amounts in seven of the largest categories: housing, transportation, food, insurance, health care, entertainment, and apparel.

The final column concludes with a comparison of U.S. spending compared to Canadian. In the categories directly impacted by the exchange rate, I adjusted. Over the course of a year, income would not be impacted by exchange rate, nor would housing, or insurance premiums, so you wouldn’t want to apply a direct 0.87X multiplier to all of the Canada spending totals. It’s not a perfect comparison, but about the best anyone can do. Here are the results:

If you’re an American, red is bad and green is good. If you’re a Canadian, just the opposite.

As you’ll see, Americans spend about 20% more on housing, 1% more on food, 28% more on insurance, 56% more on health care, and about 2% more overall.

They spend about 10% less on transportation, 11% less on entertainment, and 30% less on apparel.

Observations & Theories

There are some interesting conclusions you can make from this data.

Consumer-Driven Categories: On the surface, Canadians would appear a bit…. shallow, shall we say? On the 3 most consumer driven categories, they spent more than Americans: 10% more on transportation 11% more on entertainment, and a whopping 30% more on apparel (no wonder they look so good).

Americans are spending more in categories that they have less control over: 20% more on housing, 1% more on food, 28% more on insurance, and a ridiculous 56% more on health care.

Housing: Canada hasn’t had a housing bubble burst like the U.S., and with 20% more being spent by Americans, it’s no surprise to see why Americans have had the trouble we have. We were simply spending too damn much on housing!

Transportation: Transportation surprises me a bit. The larger Canadian cities that I’ve been to typically have much better public transport than equivalent American cities. And Americans have a reputation for pissing money away on luxury vehicles. Way to drop the ball, Canucks! My only guess here is that there is just so much damn open area in Canada that many Canadians are forced to drive further and spend more on fuel than Americans.

Insurance & Health Care: These two are closely tied together. Americans are spending a staggering 28% more on insurance and 56% more on health care than Canadians. This is not a big surprise as Canadian health care is publicly funded and most health services are free at the point of use.

By the way, Canadians love it. A 2009 Harris/Decima poll found 82% of Canadians preferred their healthcare system to the one in the United States, more than ten times as many as the 8% stating a preference for a US-style health care system for Canada.

Overall: Just looking at the two, I’d have to say Americans are a bit more budget savvy, to my surprise. Americans have been hammered on housing costs (pay what the market dictates), higher insurance premiums, and haven’t had a choice on health care costs.

Meanwhile, Americans have spent less on those very consumer-driven categories: transportation, apparel, and entertainment.

So there you have, some surprising results.

As for those loveable beavers? They mystery continues…

U.S. Vs. Canada Consumer Spending: Who is More Budget Savvy? is copyrighted by 20somethingfinance.com without consent to republish.