Spending Comparison

This is a guest post by Robert, who lives in Calgary and works as a financial adviser. He is married, has three kids and plans to retire at age 35.  Robert and his wife then plan to return to school and become teachers, eventually living and working overseas.

Last week, I wrote about spending too much in the context of world-wide consumption. Even though there’s no right or wrong spending amount, it can be enlightening to understand how one’s choices and habits compare to neighbours. Today, I’ll use the word “neighbour” in its loosest sense as I compare spending in different regions of the world. For this to work, you should really have a good idea how much you spend on a regular basis. Then you can compare your spending amount to the average person in Canada and in other parts of the world.

The first step, then, is to find your monthly spending amount. You could look at your budget, if you keep one, which is accurate if you spend only your budgeted amount. My preference is to look at past spending. This is more likely to include one-time expenditures and reflect what is really spent, not only what was budgeted. I collect together three monthly bank statements and credit card statements, and add the amounts together. I remove the credit card payments from the bank amount to avoid double counting. Multiplied by four, this gives a pretty good estimate of annual spending. Ideally, I would use the last 12 monthly statements, but I don’t always have them available. My annual spending amount after taxes is about $36,000 not including interest costs or debt repayment.

I’ll look at the GDP per capita to make the comparison between countries. It’s impossible to find how much the average person spends on their monthly living expenses, and average isn’t really meaningful in this context. GDP per capita should give an idea of how much earnings are available per person. As an example, according to the CIA World Factbook, using 2010 US$, the GDP per capita of Canada was $39,600. That means a family of five, like mine, is attributed about $200,000 of pre-tax income. With two incomes, this might be possible, but I suspect there are a few ludicrously high incomes skewing this number. A simple but interesting international comparison, by The Economist, was made to compare quality of life between countries.

In North America, we might compare ourselves to the US, with their GDP per capita of $47,400 or to Mexico at $13,800. Or we may compare ourselves to other English-speaking countries: the UK at $35,100 or Australia at $41,300. Other developed nations include Germany at $35,900, France at $33,300 or Spain at $29,500. We in Canada are not the richest, but very close to the top of the heap.

Let’s look at countries outside North America and Europe. Some of the most populous countries are some of the poorest. China has per capita GDP of just $7,400 and is home to around 15% of the population on the Earth. India is at $3,400 and has about 10% of world population. Brazil is the fifth most populous country (3% of world population) and is at $10,900. Russia has the ninth largest population and has $15,900 per capita GDP.

Finally, let’s look at a few of the poorest countries. Many of these are former Soviet republics or located in southeast Asia or Africa. Uzbekistan is at $3,100 and Tajikistan is at $2,000. Vietnam comes in at $3,100 and the Philippines are at $3,500. In Africa, Nigeria has per capita GDP of just $2,400, Tanzania has $1,500 (possibly the poorest in the world) and Zimbabwe, with their political and fiscal problems including hyper-inflation, was reported at just $400 of GDP per capita.

Do you feel rich? The GDP per capita of the entire world was estimated by the CIA at $11,100 for 2010. How do you compare? Does this change the way you think about your regular consumption? Bonus question: How do people survive on less than $500 per month?

2 thoughts on “Spending Comparison”

  1. GDP is home much is produced per person, not necessarily the income. It also makes a big difference how much things cost. In Canada, people wouldn’t work for less than 15 or 20 per hour, so whatever they make has to cost more than that input. In China people make approximately the same proportion per hour, or about 20% of what we make, so maybe 3 per hour, or likely even less because there are fewer machines in China to do the work. But then, everthing costs probably 20% what we pay, so its cool.

  2. I agree that GDP isn’t a perfect measure, but it applies either to aggregate output or aggregate income. Dividing it per capita gives an average, which is less useful than a median. And it ignores purchasing power parity. But the idea is valid, even if the numbers aren’t perfectly clear.

    I wonder if you’ve ever been to China. I’ve lived in Taiwan and visited Hong Kong and read about the rest of the country. Apparently there is huge disparity between rich and poor. Yes, people can get by on a tiny income, but we could rent a tiny house in the country and eat nothing but cabbage and rice here in Canada, too. The Chinese see their compatriots driving a Mercedes, eating at fancy restaurants and wearing designer fashions, living the high life. If you think the “poor people” don’t want that lifestyle, you’re kidding yourself.

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