In an alarming trend, the Canadian middle class seems to be struggling. Gone are the days of a dual income household being able to comfortable afford a home, kids, and retirement. Replaced now by heavy debt loads and limited savings, but what exactly is considered middle class?
Generally speaking middle class households earn anywhere from $60,000-$90,000 since that’s considered the medium income, however back in January, Canada’s finance minister said families that earn up to $120,000 qualify, so what gives? Okay so there’s no universal definition of middle class, but it sure appears that the middle class is shrinking.
Incomes are relatively flat and the cost of housing in Canada has stretched our budgets. A dual income doesn’t really go as far as it used to so now there’s many things the middle class can’t afford anymore.
Things the middle class can no longer afford
Houses – The average home in Canada now hovers around $450,000. In Toronto and Vancouver, detached homes are over a million dollars. Many middle class families will do anything to become homeowners and that usually means taking on mortgages that they can’t afford. A mortgage is supposed to be a good debt, but now at best it’s a tolerable debt if you truly can afford it. The other problem with housing is sometimes it fools us into thinking we’re doing alright. What good is a million dollar home if we owe $950K? It’s our real net worth that counts
Fancy Cars – Nice cars are another thing the middle class can’t afford. Well cars are technically “affordable” on a monthly basis if we’re willing to take more financing years but that will cost us much more in the long run. The worst part about spending too much on a vehicle is that we end up sacrificing on other things like our retirement funds.
Vacations – We can blame the weak Canadian dollar all we like, but the real reason some Canadians aren’t travelling as much anymore is because they can’t afford it. If we’re making large monthly mortgage and car payments, how can we realistically expect to take yearly vacations? Yearly vacations are still possible, but we need to save for them instead of putting them on credit.
Eating out – Eating out all the time is one of the major contributors to why the middle class can’t afford so many things anymore. Eating out is a treat, but we’re probably doing it a bit too much. Coffee, snacks, lunch, and dinner, it all adds up which can do some serious damage to our budgets. Eating out should be a treat, and if we do it all the time it’s no longer something special.
Children – A bit of a controversial subject since the decision to have kids isn’t based on finances alone, but there’s no denying that children are expensive. One could argue that it’s irresponsible to bring a child into world if you’re finances aren’t in order – as if that has ever stopped anybody. When borrowing money, lenders don’t care if you can afford kids in the future, so if you’re planning on having any children, make sure you’re not taking on too much debt in advance.
RESPs – Even with the Canadian Education Savings Grant, many parents are struggling to pay for their children’s education. To be fair, education costs have raised considerably over the years and some parents want their kids to pay for their own education. This actually presents a bit of a challenge since kids from middle class families may not qualify for full financial aid. The point is, with less available funds, parents are unable to help fully cover post-secondary education costs.
With all the things that we’re spending money on, retirement has become a major thing that the middle class can’t afford. Failing to save early or not saving enough will have a serious impact on our retirement years. It’s time to get serious about saving now so we won’t have to depend on our adult children to bail us out when we’re retired.