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What the Barenaked Ladies Can Teach You About Inflation

Posted on Alex Conde June 21, 2018 • 3 min read

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  • Canada has had a long period of low inflation, but that can change
  • You don’t see the impact of inflation day-to-day, but you feel it long-term
  • You must plan for inflation to have enough money saved to live the retirement you want
what-the-barenaked-ladies-can-teach-you-about-inflation

If you’re saving for your retirement, you should be planning for the impact inflation might have on your retirement savings. Inflation is defined as the rate of increase in the general prices for goods and services, and the corresponding fall in the purchasing power of currency. Canadian inflation rates have been reasonable over the past few years, but there are some indications that they might be on the rise.

With the inflation rate under 2%, you might not see the impact of inflation on a year-to-year basis, but over a long period the impact can be substantial. For example, if you plan on travelling in your retirement, an increase in gas prices or airline ticket prices can impact how much travelling you can do.

Let’s look at a fun example of how the value of money has changed over time by examining a song you might remember from the 90s.

If I had a million dollars

In 1992, the Canadian musical group Barenaked Ladies released their first album (titled Gordon), which included the song “If I Had $1,000,000.” In this song, they talk about all of the things they would buy, including:

  • A house
  • Furniture for the house
  • A K-Car
  • Love
  • Some art (a Picasso or a Garfunkel)
  • A monkey
  • Kraft dinner
  • Fancy ketchup

Let’s assume that in 1992, one million dollars was enough to purchase everything listed in the song. How does that stack up 25 years later?

A million dollars isn't what it used to be

While a million dollars could potentially have bought all of these things in 1992, it doesn’t stretch as far in 2017. The average home price in Canada hit $612,997 in March of this year, with houses in the Toronto and Vancouver areas going for much higher amounts. Furnishing that home depends on your tastes, but some experts say you should expect to spend 10-15% of overall home cost in interior designing and furnishing.

When it comes to cars, you can’t buy a new K-car anymore (they ceased production in 1989), but the average Canadian car (as of 2015) cost $27,563. And, according to the CAA car costs calculator, it can easily cost $10,000 to drive a car for the year based on insurance, fuel, licensing, depreciation, and other costs.

When it comes to love, a survey by RateSupermarket.ca found the cost of love to be sharply on the rise. The cost of a year of dating, a one-year engagement, and the average Canadian wedding comes out to an estimated $66,444.09.

Only three items into the list, and you’ve already spent approximately two-thirds of your million dollars. We haven’t even talked about the Picasso (or Garfunkel) yet.

According to the Bank of Canada inflation calculator, a basket of goods and services that cost $1,000,000 in 1992 would cost $1,553,827.75 in 2017 (with an average annual inflation rate of 1.78%).

This explains why if the song had been written in 2016, it would sure be a lot shorter. If you fail to plan for inflation in your retirement, the same thing can happen with your retirement plans—they run out early.

A million dollars sure isn’t what it used to be. However, the song says, “If I had a million dollars, I’d be rich” and that much is still true. We consider millionaires to be wealthy despite the negative impact of inflation on the value of money over the years.

However, the real measure of wealth is being able to do what you want.

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