A desired purchase, such as a vehicle, may not come from wanting to look rich, but rather as a way to push back from not feeling in control.
The next time you are about to buy something, ask yourself if you would still want it if nobody else knew you owned it. Such status-signaling purchases matter less if you’re replacing a toaster, but they might give you pause if you’re buying a car or booking an Instagram-friendly holiday.
It could also be true that your desired purchase may not come from wanting to look rich, but rather as a way to push back from not feeling in control.
That’s one of the main arguments in a paper recently published in the Journal of Marketing Research that could help explain why many Canadians who objectively make good money – yet feel subjectively like they are struggling to keep up – might be more likely to try and spend their way out of this dissonance.
Opinion: Study outlines five investing archetypes: Which one are you?
“Subjective poverty” is used to describe feeling financially constrained or insecure regardless of income. It can exist even when someone has no trouble affording food or housing, and it helps to explain why someone can make good money and still worry that they’re falling behind.
The authors noted that the response to feeling poor was associated with different answers based on income. Lower-income consumers generally respond by spending less. They don’t really have any other choice. But higher-income consumers sometimes spent more, particularly with premium and high-status brands.
They link this behaviour to a sense of loss of control. For someone with limited resources, one of the most practical ways to regain control would be to cut expenses. Someone with high income can respond differently: buying the nicer car or taking the better holiday reminds them, perhaps temporarily, that choices are still available. That helps them feel they have more control.
Ironically this can happen until they’ve lost more control. Which is a fancy way of describing how lifestyle inflation can be a silent killer of wealth accumulation. Your tastes and levels of comparison increase over time, sometimes faster than income rises.
There are of course good reasons why pretty much all Canadians feel squeezed, regardless of whether they succumb to lifestyle inflation. Prices in general in Canada are up nearly 25 per cent since 2020. The proportion of Canadians reporting financial difficulties rose to 32.8 per cent in 2024 from 18.6 per cent in 2021, according to Statistics Canada.
And while inflation is markedly lower today than it was at its most recent peak four years ago, that just means prices will rise more slowly from these new levels. Our idea of what a normal lifestyle should cost has been blown up by the inflation spike.
That feeling might reflect debt, job insecurity, or monthly expenses that have crept higher and higher. But it can also come from looking around.
Opinion: World Cup visitors give North America’s tipping culture a red card
As we earn more, we often move into more expensive neighbourhoods and professional circles. Our reference group changes, both in real life and on social media. And we compete with what we can see. We easily see assets and experiences around us, but not the debt that often fuels it.
Enjoying a higher income in and of itself isn’t the problem. Money should make life better. But it is worth considering whether any upgrade or indulgence adds something you truly value as opposed to simply being a means to confirm to yourself or others that you’re living as well as someone at your income level should.
The research offers some guidance in how to tackle this problem. Since the problem stems from a feeling of a lack of control, finding ways to increase the feeling of control you have may be the antidote. That could mean being more militant about budgeting – just like you were when you had a lower income.
For others, a full-blown financial planning process can help increase feelings of control as you can model different spending, saving, and retirement scenarios and see how they could change your financial trajectory.
Just remember when you’re listing out your life aspirations that you should pick goals that you’d be happy to achieve – regardless if anyone else knows about them.
Preet Banerjee is the creator of YourMoneyDegree.com, a financial literacy program with an AI companion app.