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Money matters

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I remember in Junior High school when I could buy a bag of potato chips for 25 cents. Then there was a jump in price, with a smaller bag being sold for 35 cents. That was a big jump and it took a while before paying more for less became the norm.

There are distinct times in my life when I recall these kinds of jumps. Like when it was crazy to see gas be over 50 cents a litre, then the price jumped above 70 cents and when it dipped back down it never went below 55 cents again. Give us gas at 71.9 cents a litre for 2 months and suddenly we are quite happy to see 55.9, like it’s a bargain price. Now I’m checking my tank to see how much gas I have when the price is under $1.65, because that’s too good of a price to pass up.

I get that prices need to go up, but what I don’t understand is how this is happening while simultaneously banks, oil companies, and grocery chains are recording record profits. It’s literally a case of gouging the consumer and blaming inflation.

Rants aside, I’m up at Whistler with my family, my mom is visiting and has never been up here. We are staying in a wonderful hotel, a surprise gift from a friend, and my kids can’t get over the way people spend their money. Here, room service for 2 would be a fancy meal for all 5 of us… and no we didn’t order any, we just looked at the menu.

A day of skiing for our family, with 2 parents and 2 adult kids would be $1,200, and if the kids were under 19, $1,100, and under 12 would be $900. Most families are here for 3-4 days of skiing. Many have flights to pay for, and hotels here are not cheap!

But for some people, spending $15,000 to $25,000 for a vacation is… normal. For others that’s a significant portion of their yearly salary and out of the question.

It’s funny, you always hear, ‘money can’t buy happiness,’ and while I agree with that, there is something affluence does buy, it buys a sense of freedom. Money matters because when you have a lot of it, you don’t have to think as much about your spending. You want something? Buy it. You need something done quickly? Pay someone to do it for you? However, when you don’t have the freedom to buy whatever you want, when the cost is prohibitive, money really matters.

Prices have jumped significantly since Covid. There are more people struggling to make ends meet. There are more people choosing not to go out for dinner because the cost is just too excessive for a family. There are people who used to ski at Whistler who have been priced out of that option. There are many more people who don’t make a purchase without thinking of the cost. They don’t have the freedom to spend without thinking of the consequences of a purchase.

That’s what affluence buys, it buys free buying power that doesn’t feel nearly as free for less affluent people. Monet matters less as you get more. I’m not sure what the sweet spot is, where the transition happens, and I’m not sure I ever will. I just know I’m at one of those price jump times where I’m going to need to adjust to the price jumps wherever I look… I’m just not sure I’ll be adjusting to these new price ‘lows’ any time soon. It’s a time where money matters for a lot of us.

Prices up

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I don’t know how some families do it? How do they manage the inflation of prices we’ve had? My wife and I both make good salaries, and while we feel the crunch of significant increases in the price of groceries, we can manage. But a single income family with a job that is financially less rewarding than our double salary household has to be struggling right now.

Add to that the increase in interest rates over the last few years and looking at how much monthly that has gone be up, and there have to be families in financial trouble. We’ve reached a point in Canada where many conveniences have become luxuries. Foods and meals that used to be staples are becoming special treats. I saw a video clip from a European country where inviting friends over for dinner now routinely comes with a bill, their equivalent of a direct deposit request or Venmo. ‘We are happy to have you over, this is what it cost us and this is your share’.

I could never see myself wanting to do that, but if I was in a community of young adults who liked to party and not everyone could host regularly, I could see this as a thing… friends understanding that the hosts are put out more than anyone and so helping them out. While it makes financial sense, I see it as an undermining of the friendship relationship. It puts a price on friendship. Imagine going to party and getting a different bill depending on if you drank more or went for seconds and ate more. That would feel very awkward to me on either end of the transaction.

But it seems that’s how some young people are coping with the inflation of everything around them. They want to be social but don’t have the financial means to do so regularly without splitting the bill. To me, this is an example where high prices are not just affecting our finances, but also our sense of community. It’s a sign that our greater society are coping and not thriving.

At least people are still trying to get together… and sharing the cost is much better than being isolated. It’s just sad that this is, for a growing number of people, necessary.

In debt we trust

If there is one thing you can bank on, it’s that people will spend more than they have. Most people live beyond their means. Maybe they have a savings account, and maybe that savings account is growing… But then a purchase is made: a bigger house, a new car, a renovation, a medical expense, a car repair, a new furnace, a high definition TV, a fabulous new outfit, a vacation… and then the savings account diminishes, and it’s time to go (further) into debt.

I received this add from my bank yesterday:

What’s the message? Today is a great day to meet your shopping goals! Translation: Purchase on borrowed money, and take your time paying it back. Buy, buy, buy, by borrowing, borrowing, borrowing, sending you deeper and deeper into debt. It’s easy, so go ahead and spend money you don’t have.

The thing about this advertisement is that it’s not selling you any one product, it’s selling you a lifestyle where you can live in greater debt. It’s selling you ‘affordable’ interest. It’s selling you a pattern of lifetime debt. Buy now, pay later, and keep paying.

That savings account you once used to build, now grows only immediately after a salary cheque… then each month instalment payments on debt, added to monthly expenditures, eats away any hope of savings. But don’t worry, you’ll find away to almost pay for the next big purchase. Almost. And your bank will lend you just a little more to pay it off. And then you can set your own pace to pay it off. The slower you go, the more you pay, the less you have to accumulate savings… The more you go into debt after that next big purchase.

Welcome to the endless cycle of debt.

Market volatility

Three years ago I put a little bit of money into cryptocurrency and then the market took a huge dive. It was hard to watch this ‘investment’ dive to 25-30% of what I put in. But it wasn’t like I put in more than I could afford to lose, and I didn’t panic and sell at the bottom. I held on… or as they say in crypto, HODL (a term started with the word HOLD being written with a typo, and now standing for Hold On for Dear Life).

Late last year my investment jumped back up to break even, and then soared, and I learned my first lesson about investing, and that is dollar cost averaging. If I had not put the investment in all at once, but instead had put money in monthly, I would have done so much better. The reality is that this strategy works better than 90-95% of investment strategies. So, unless investing is the thing you do, your best strategy is to put a small amount of money in every month, no matter what the market does. The volatility works to your advantage, and no one knows when the market is going to dip.

Last night was one of those dips. Wham, 20-25% down! It’s sad, but I bet many new investors lost a lot of money and sold out when they felt the pain of watching their investment sink. For me, I’ve seen this before, and my small investment is doing better than if I had put that money into an RRSP or Tax Free Savings Account. But I’ll be honest and say that for a couple years, it didn’t seem like this.

What’s interesting is that adoption of cryptocurrency is growing, the use-cases for them are incredible. Smart contracts (that cut out expensive bank and lawyer fees), back-end tracking of supply chains, and decentralized borrowing are a few places that blockchain technology are literally ‘taking over’. Also, while many people struggle with the idea of NFT’s (Non Fungible Tokens) these are revolutionary in the way an artist or creator can gain profit from the resale of their work. And the Metaverse is something that will grow and holds amazing potential… and huge profits in the multi-billion dollar gaming market.

What’s really going to change the crypto market is the speed of adoption. If you own cryptocurrency now, you are about 2-3% of the world’s population. It took about 12 years to get to this percentage. It will probably take less than 2 more to get to 5%. Three years ago I had to drive into Vancouver to put money into crypto, and because my investment was quite small, I had to pay a premium at over 5%. Now I use Netcoins, (full disclosure, that’s a referral link), and it’s a simple e-transfer, and a 1.5% premium on the purchase. Easy. And everyone has seen adds for Crypto.com, where you can buy, stake (lock in and earn interest), and even spend (with a prepay visa) crypto.

Both the interest and access have opened up dramatically, and the adoption of cryptocurrencies is about to explode. But with this comes even more volatility. With this comes the high speculation gambles and the fear selling when the market does what it did last night. And cryptocurrency is risky. It’s not a normal thing to watch the volatility of 10-25% rises and dips and think, ‘easy come, easy go’. But I enjoy looking into the projects and investing a little bit in them. I’m not planning on taking any profits out until after I retire, and I’m not putting enough in to make a difference in my day to day living and spending habits. So the volatility isn’t much more than entertainment. Though I will admit, the appeal to put a bit more money in when I see a big dip like this is pretty strong.

One thing that I fear is that a lot of younger people, with less disposable income are jumping into meme coins (popularized coins that only serve to be traded with little other purpose). These are high risk, and susceptible to ‘pump and dump‘ schemes where they simultaneously buy causing a jump in price, and get people excited to catch the ride up, then those behind the scheme dump their coins on the market taking massive profits at the top, and leaving everyone else holding the coin at a much lower value.

A 20-year old thinking long term and dollar cost averaging, will do well. A similar person seeking massive profits will end up losing their investment 4 out of 5 times, but they will know someone who was the 1 out of 5 profit-maker and think that they can do the same. Betting on short term market volatility is risky and will cause a lot of people pain. Where as, knowing that market volatility is profitable over the long term and dollar cost averaging is what smart investors do.

It’s a simple formula where risk over a shorter time can lead to greater profits but will more likely lead to greater losses, and risk over a longer time might not get the huge gains, but it will reduce the risk of loss: Invest a small amount, repeat, and HODL. The next lesson is when to take profits… I have a strategy, but I’m still trying to learn more from people a lot smarter than me.

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(Disclaimer: I’m not a financial advisor and I don’t play one on the internet… this is not financial advice.)