Perspectives podcast: Understanding loud budgeting and other social media money trends

Stephen Meurice: Have you heard of loud budgeting? 

KC: Loud budgeting is really about being open about your finances. 

SM: That’s our guest today, Kingsley Chak. 

KC: It’s not just about being frugal, but comfortable, proud to talk about it.

SM: And loud budgeting is just one of many money trends you may have seen in your social media feed lately. A place where there’s no shortage of experts, and not-so-experts, trying to give you budgeting advice in quick, viral bites.

KC: Absolutely. And there's just so much information out there. Some of them is great. Some of them is not great. But it’s really tough to figure something out in fifteen seconds. 

SM: That’s why this episode, Kingsley’s going to break down some recent budgeting trends that have been making the rounds online. He’s the Senior Vice President of Deposits, Savings and Investments at Scotiabank, so he can give us a level-headed take on these buzz-worthy money movements and let us know which ones might work, which ones might not and why. He’ll also give us some context around why these trends are taking hold these days, as well as some evergreen, fad free tips on getting a handle on your own finances. 

I’m Stephen Meurice and this is Perspectives. 

Kingsley, welcome back to the show. Really great to have you on again.

KC: It's good to be back, Stephen.

SM: Alright. So, you're coming on today, you're going to tell us about some new or recent trends in saving and investing, but maybe we could start with a bit more of an overview. How are people feeling about money right now? I know you and your team have been doing some work on that.

KC: Yeah. So, Scotiabank, every year we run our worry poll and our intention is to get a feel for how Canadians are feeling about their finances. And so, what we found is actually fewer Canadians are worrying about their finances. 

SM: Really?

KC: But among those who are worried about their finances, they're spending more hours worrying about it. This year, we actually find fewer Canadians are worrying about their finances. So about 46% this year worry about finances versus last year, 54%. The interesting thing is, among those who are worried about their finances, they're spending more time a week worrying about it. So, this year, people spent over 17 hours a week worrying about their finances versus last year, that was just under 16 hours.

SM: So, the people who are worried are worried a lot.

KC: People that are worrying are worrying more and worrying a lot. Yes, that's right.

SM: Okay. But on the positive side, you said, generally speaking, people are a little bit less worried about money now than they were before?

KC: Yeah. So last year, 54% of the respondents said, ‘I'm worrying about finances.’ This year it’s about 46%.

SM: What's driving that, do you think?

KC: Yeah, about half of the respondents said when they're worrying about finance, it's the day-to-day spending. Like we've seen inflation has been still quite high. Over 4% to 6%. Depends on which category you're looking at, housing is more expensive, food is more expensive, services are more expensive. That actually adds a lot of pressure to the day-to-day expenses for Canadians. So that's the number one worry. Over 50% of the respondents are worrying about that. Second is definitely paying off debt. With high inflation, every dollar that you borrow, you're paying more interest. So, Canadians, top of mind, is how do we pay off that debt and minimize that interest expense?

SM: Right. With interest rates having gone up a lot over the last couple of years, I guess especially on the housing part of it, their mortgages have gotten more expensive, for most people, if they've had to renew over the course of that time. And even rentals have gotten a lot more expensive as well.

KC: Yeah, rent cost has increased quite a bit. And then for mortgage rate, right? Like I'm lucky enough, get a fixed rate at 2.19%

SM: Wow [laughs]

KC: And those rates are not heard of and now we're looking at five plus percent, right.

SM: Yeah. When do you have to renew your mortgage?

KC: In two years.

SM: Okay. 

KC: Still got a little bit of time [laughs] 

SM: Alright. They'll come down by then, we're all hoping. 

KC: Yeah, exactly.

SM: Okay. So, we’re going to get into some trends in budgeting today. First, I wonder, does your latest worry poll tell you anything about how people are approaching budgeting? Or thinking about their money?  

KC: Yeah, what we see is actually Gen Z, the younger population, is spending more time worrying about finances. At the same time, they are more optimistic on what's going to happen for the next six months. So, among Gen Z, half of them will say, ‘Over the next six months my financial situation will be better.’ Versus the Canadian average of 23%. Right so, on the worry side, 47% of them say, ‘Finances keep me up at night.’ Versus the general population around 27%. So, it's interesting to see the younger generation, they worry more. At the same time, they are more optimistic. And what we see is in that generation, they're willing to do more to save and to get more saving. To give you a couple examples, Gen Z, they love to redeem their loyalty points on everyday items. 43% said they do that, versus the Canadian average of 34%. They will go to multiple different grocery stores to get the best price. 42% would do that versus a Canadian average of 34%. So, they are more active. They are looking at every single dollar that they are spending. And 80% of them said, ‘I will go and seek financial advice.’ Versus 60% of the Canadian average. So, they are definitely more willing to talk about their finances, they’re more willing to work a little bit harder to save money here and there.

SM: Right. And I guess being sort of comfortable online, there's so much information that they can access. They're comfortable going to look for that information and ask for the help.

KC: Absolutely. And there's just so much information out there that you want to learn about finances. Those are easily accessible. And I think Tik Tok has a lot of stuff that they are looking at right.

SM: Yeah. Some of it maybe a little bit sketchy, but…

KC: Yeah, some of them is great. Some of them is not great. And so, make sure the source is credible and when in doubt, fact check it. Talk to your friends and if needed, talk to a financial advisor. Because it's really tough to figure something out in 15 seconds.

SM: Okay. So, speaking of social media, maybe we can get into some of these budgeting trends that people may have seen in their social media feeds or heard people talking about. Let’s start with one that’s gotten a lot of attention recently and that’s loud budgeting. 

KC: Yeah, loud budgeting is really about being open about your finances. To give you an example. Let's say your friend says, ‘Hey, Stephen, let's go out for dinner.’ In the past you might say, ‘I want to go out for dinner. I want to make sure to go out, so I'll find the money somewhere to do that.’ Loud budgeting is saying, ‘Oh I'm trying to save more money. Maybe we should hang out and order in, or I'll cook. Come and have dinner at my place.’ So, it’s really about removing the stigma of talking about your finances, removing the stigma of, ‘Hey, I want to save more. And I'm explicit in doing that trade off.’ That's really what the spirit of loud budgeting is. Loud budgeting is not just about being frugal, but comfortable, proud to talk about it and say, ‘Hey, I'm actually happy that I am saving for this. And you as my friend should be happy, too. You should support me on it.’

SM: Yeah, I mean I see that in my own kids who frequently will buy clothes at used clothing stores and they're very open about it and they brag about the deals that they get.

KC: Yeah, the two words that come to mind on loud budgeting is boundaries and vulnerability. So, it's really setting the boundaries on what you're comfortable doing and not doing from a financial perspective. So, if your friend asks you, ‘Hey, Stephen, let's go to bungee jump.’ If you’re afraid of heights, you’ll say, [laughs] ‘I'm not going to do that. No way.’ Right? But if someone says, ‘Hey, let's go spend $200 to go to a fancy sushi restaurant that's on Instagram.’ Somehow, we don't feel as comfortable saying no because we're worried about being judged on our financial situation. Loud budgeting is about, ‘Hey, I'm okay with setting boundaries.’ And also, you're being more vulnerable and saying, ‘I'm in the process of saving more money and I'm being more frugal.’ And I think that's the spirit. And it's very much aligned with in mental health we're talking about setting the right boundaries, it's okay to be vulnerable. In the leadership discussion, Brené Brown always talk about being vulnerable, and that's part of being more authentic. And I see loud budgeting and being more your authentic self from a financial perspective, that's how I see it.

SM: Right. I mean, I guess it's about — the loud part of it anyway — is about being proud and not ashamed. I guess it's that stigma you’re talking about is maybe gone away where it's not just okay, but a good thing to be cheap, kind of.

KC: Right is okay to be vocal and be comfortable sharing that, ‘Hey I'm trying to reach my financial goal. I'm trying to save more.’

SM: Feels like kind of a good thing. Like both around the mental health aspect that you talked about, but even just as a way of approaching finances because it's to some extent about frugality, right?

KC: Yeah, exactly. I think the phrase that’s anti-loud budgeting is like, you know, the ‘seen and be seen’ type thing. And I want to let others perceive that I am well-off, or I am rich to a certain extent. And I think they’re just saying you don't need to buy that specific brand to send that social signal to others. It's okay to say, ‘Hey, I'm prioritizing other things. I’m prioritizing savings and that's totally okay.’

SM: Right. Maybe that’s sort of bit of a backlash to like quiet luxury. Maybe you can explain what that is. And is loud budgeting a response to that? 

KC: Yeah, I Think it's kind of like the opposite, right? Quite luxury is you're still wearing and using nice things without the flashy logo that you can see but you are still spending. It’s more of a subtle way of doing this. This is different. This is about I'm not comfortable doing that financially and that's okay.

SM: Right. Yeah, I think the quiet luxury thing was kind of epitomized, people talked about this when that show succession was on and one of the main characters wore a black baseball cap that didn't have any logos or anything on it, but apparently costs $500, just for this black baseball cap without a logo on it.

KC: [laughs] Right. Loud budgeting I think is a great thing. And I want to applaud the younger generation in terms of not sticking to the stigma we had from the older generation, right?  The older generation don't want to talk about the finances and let's be more transparent, let's be more authentic and approach financial planning the same way as approaching mental health. And that's great.

SM: For sure. Okay, let's talk about the next one, which is soft saving. What does that refer to?

KC: Yeah, this is the concept of, ‘I want to prioritize now and my experience now.’ And trading off, saving for the future. Essentially it’s a euphemism of saying, ‘I'm going to spend the money that I have now and enjoy my life.’ Right? That's pretty much what it is.

SM: Sounds frighteningly like my twenties.

KC: [laughs]

SM: Do those exciting things that you want to do while you're younger and just put off the difficult decisions till later on.

KC: Right. And, just hearing that, that could have unintended consequences. Right? But it goes back all the way to basic economics theory in terms of, you're optimizing your period 1 and period 2 spending. That's what it is. And this is saying, ‘I put much more value in period 1 than in period 2 so I’ll spend all the money in there.’ But you don't know what's going to happen in the future. Right? Like in financial advice, we always talk about, you should have a rainy-day fund. And it should be 2 to 3 months of your monthly expenses. That's a backup. That's a safety net. That you need to have in case something would happen to your finances. Soft saving will say, ‘Oh let's not worry about that and I'm going to go and buy something with that.’ There's imbalance in there, right? Too much of one thing might not be good. I think a balanced approach to your financial planning is definitely critical. And if people wear their soft saving as a badge of honour, that could have consequences down the road in your retirement saving, in your future saving. And maybe you want to save for your education, save for — we just talked about house prices are expensive — that requires you trading off what you spend now to save for the future. 

SM: Right. I'll come back at the end to just get your some of your broad advice around what you think is the best approach. If it's somewhere in between these things, but we'll just talk about the last sort of trend, something that we've heard about over the last few years, something called FIRE, which is financial independence retire early. Which I think is kind of the exact opposite of soft saving. 

KC: That's right. 

SM: Maybe you can explain it.

KC: That's right. This is about let me save as much as I can now so that I can retire early. I don't need to work until 65. I think some of the ratio would be 80% of your income should be saved. 

SM: Wow. How do you even do that?

KC: I think that takes extreme discipline to do that. And it's not for everyone. I would say, again, going back to the economic model of period 1 and period 2, you’re significantly trading off period 1 and trying to put all your savings into period 2 in the future. For those who can do it, great. But I think it’s a nice concept, very difficult to implement because there are things that you need to do today and right now to meet your basic needs to continue to function and also enjoy life a little bit. And so, what is the right trade off? And that's a very personal decision. I think all this is a very personal decision, we're just talking about broadly how this might impact anyone's finances and lifestyles.

SM: Right. So maybe just to explain that FIRE thing a little bit more, I guess that would mean, I don't know, you live what your parents so that you don't pay rent. 

KC: I guess so, yeah.

SM: You don't ever buy a coffee or a latte anywhere. You take your lunch to work every single day. Like it's sort of like real extreme frugality.

KC: Exactly. Exactly. And some folks would love to do this, but, I think that is a very small segment of the population.

SM: I guess the prospect of being able to retire at the age of 40 or 45 can be kind of attractive. But at a cost.

KC: Yeah, at a cost. And I guess make sure your calculation of what's your life expectancy, then do you have enough money to support you from the early retirement age all the way to…

SM: Yeah, maybe 50 years of retirement. 

KC: Right. Right. And so how much frugality you need during that time to make it sustainable? There's a lot of calculation assumption that needs to go into to make this work, right?

SM: Yeah, I think the number of people, especially younger people who actually have a budget, who figure out exactly what they're bringing in every week or every two weeks or whatever it is, exactly how much is going out, so they know what their disposable income is and can think about it, probably a lot of young people don't do that.

KC: Yeah, it takes some time. It takes some discipline to do that. And once you set up the budget, you need to take the time to go back to look at it every month. I guess I would say there are different degrees. If someone were to get started, you know how much your paycheque is every two weeks, right? And start tracking your expenses, looking at your credit card bill. You should make sure that your income is higher than your outflow. That's the first step. At the same time, there are a lot of simple financial tools that are out there. Looking at the Scotiabank app, we have Smart Money. When you go there, you can set your budget in the app directly and it will automatically classify where you're spending, looking at your credit card, looking at your debit card and say, okay, is this for entertainment, is this for meals, is it for transportation? It helps you to automatically classify that. Then you can see every month, ‘Oh hey, where am I over or under budget?’ Having that information at hand is important and get a real good sense on where your inflow and outflow is.

SM: Right so the three different budget trends we talked about today – loud budgeting, soft saving and the retire early FIRE trend – those really go from one end of the spectrum to the other in terms of how people might approach their money. And obviously it has a lot to do with your own personality, your own long term goals. But what are the main things you want people to take away from this conversation? Some advice that transcends trends maybe.   

KC: Yeah, there are two things. Number one is having an emergency fund in case there's ups and downs in life you're set up and you're protected. Number two is really having a budget. So, you know what's coming in and what's going out. And just having that visibility is important. 

SM: Right. 

KC: Just get started. That's often the most important step. And there are a lot of tools out there that can help you to manage your finances, manage your budget. But if you're stuck and you want to talk to someone, a financial advisor is always available and ready to help.

SM: Kingsley, Thank you so much for coming on the show again. Really appreciate it.

KC: Yeah, great to see you, Stephen. Thanks for having me. 

SM: I've been speaking with Kingsley Chak, Senior Vice President of Deposit Savings and Investments at Scotiabank.