A six-figure income doesn’t necessarily mean the earner has money in the bank. Surprisingly, many high-income people don’t, because they’re spending it all.

According to a recent survey from GoBankingRates in the United States, 23 per cent of respondents with incomes of US$150,000 or more had less than $1,000 set aside for emergencies, and one in three had nothing saved for retirement. In Canada, a 2017 study from the Canadian Payroll Association found that 41 per cent of working Canadians spend all or more of their net pay, often going into debt.


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Why don’t some people save even when they are making plenty of money? Why do some high earners live paycheque to paycheque?

People bringing home big paycheques do not by default become wealthy, says Moira Somers, a neuropsychologist, consultant and executive coach with a financial psychology practice in Winnipeg. She feels it’s important to make the distinction that you’re not actually wealthy if you don’t have the savings and investments or you don’t truly own the mansion you’re living in.

“These people haven’t quite come to terms with their wealth,” she says. “They may have a mindset that comes from a different time in their life when living paycheque to paycheque was more a necessity. But they haven’t adopted the habits, behaviours and customs of the new culture that they could be part of if they wished to be – the culture of truly high-net-worth people.”

While generally these high earners have not come from wealth, she says, most wealthy people don’t come from wealth, either. But they have learned what they need to do to become truly wealthy.

“There’s a real shift in culture that has to take place,” Dr. Somers explains. “We know from research that while wealthy people obviously have more money, proportionately they spend less. They enjoy their money but just don’t ramp up their discretionary spending at the same level as their earnings. That makes all the difference in the world.”

Some people no longer process the implications of their overspending, she says.

“We get a little dopamine hit every time we buy something that makes us happy, happy, happy,” she says. “It’s fulfilling some need, but it’s short term and needs to be repeated to be effective."

Many high earners have stressful jobs, and when they come home they unwind by surfing e-Bay and Amazon. “They’ve got one-click ordering turned on, and suddenly all this crap is arriving at the door,” she says. “Some people don’t even open the packages because the dopamine hit comes from ordering it. So I’ve got high-earning hoarders, essentially.”

Those who live beyond their means early on can find change difficult once they have become accustomed to a certain lifestyle, says Dan Nolan, an Ottawa-based investment adviser with Investment Planning Counsel.

“It boils down to a lack of financial savvy,” Mr. Nolan says. “By not having [a budget] regularly in place where you update what comes in from what goes out, you don’t know what you have. So there’s a tendency to overspend.”

He also sees a lot of pressure, real or perceived, to keep up with the Joneses.

“I have a friend who’s brilliant, makes a lot of money and spends every dime,” Mr. Nolan says. “The reason is he feels like he needs to project a certain image based on what he does to look successful. So it’s very much psychological.

"Also, there’s so much pressure on high-earning people from a job standpoint, that perhaps they’re not focused on [the financial responsibility] aspect of their lives because they’re too busy. They just can’t get it in front of them. They want to get to it but never do.”

The high cost of living is also a factor, says Chuck Grace, a lecturer at the University of Western Ontario’s Richard Ivey School of Business and consultant to the wealth management industry.

“It’s important to remember we’re paying a lot in taxes, and that housing prices in Vancouver and Toronto are through the roof,” Mr. Grace says. “A lot of Canadians have ended up with big mortgages, so $150,000 in income doesn’t buy you a lot.”

Like Mr. Nolan, he believes that we have a financial literacy issue in Canada. As many as 40 per cent of Canadians struggle with fundamental financial concepts, based on recent studies, so it’s not surprising that some Canadians struggle.

“One of the first things I do with students in my class is a debrief on their budget,” says Mr. Grace. “They’re shockingly naive about how much money is coming in and how much is going out and where it’s going to. A lot don’t have a budget at all. It’s apparently not something that was shared with them in public school or high school, or taught at the dinner table, or was a topic of conversation with their peers. Blissfully unaware.”

Another contributing factor is that money is a taboo topic to many Canadians. He observes that while they will talk about their health in detail over coffee at Tim Hortons, they won’t share financial information.

“I don’t know what the roots are, but money isn’t a topic of social conversation here, unless you’re looking for investment advice,” Mr. Grace says. “Then everybody’s a wizard.”


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Kendra Sivertson
Certified Financial Planner
Perspektiv Financial