I have proudly been a member of the FI/FIRE community since 2018 and in that time I have learned a couple of things. Particularly about saving money in Canada.
- The general FI culture is VERY US central.
- Canada is very misunderstood by the US.
So in an attempt to clear things up, here are 9 reasons pursuing FIRE, and saving money in Canada is harder than in the US.
1. General Purchasing Power
Purchasing power is relative purchasing power in buying goods and services in a given city for the average net salary in that city. In other words, taking into account how much everyone makes, how much are they then able to buy. The higher the number, the farther your money goes. I should also note that for this number I am looking at the country broadly. Every city is different, but I leave my sources below every number and fact I use so feel free to take a peek and look at specific cities.
All of these indices are based on the cost of items in New York City. So if a number is higher than 100 it means the average person there can buy more than a person in New York City, while if it is lower the person can buy more than someone in New York City.
In the case of Canada compared to the United States, as a whole, in the United States, the average person has a purchasing power of 109.52, while a Canadian has a purchasing power of 95.09. This means that with all things equal the average Canadian can buy 14.43% LESS than the average American.
This overall higher cost of goods and services can make it harder to save money, as just surviving costs more than how much is made.
2. Income Taxes
One of the largest things most Canadians know about why it’s more expensive to live here is the higher taxes. The unfortunate part about comparing taxes is that it’s hard. Because both countries using a progressive tax system, and everyone having a varied income it is hard to compare apples to apples, but I will do my best.
Let’s start with one of the simplest ways to compare. The top personal tax bracket, and the income required to hit that bracket. For both countries, I will be comparing federal income plus the lowest state/provincial tax. In Canada, this means Nunavut, and in the United States, this means any of the 9 states with no income tax on earned wages. I will also compare the highest, which in Canada is Nova Scotia, and in the United States, this is California.
This means that for Canada, the lowest of the top income taxes is for every dollar over $214,368 you will pay approximately 44.5% tax, while in the united states you would pay 37% tax on every dollar above $518,400. Meanwhile, the highest tax in Canada would put you paying 54% tax on everything earned above $214,368, while in the US you would be paying 50.3% tax on everything above $1,000,000!
This means that you can make not only more money before hitting the higher tax bracket in the US, but even the higher tax bracket itself is a lower amount. This insane gap in taxes can be a make or break when it comes to investing, saving, and increasing wealth.
3. Property Prices
As any new home buyer in Canada knows, the prices of houses throughout Canada are growing every year. And the numbers support this. Similar to general purchasing power, there is an index that shows the costs of homes from one country to another. This doesn’t just apply to buying homes. Throughout Canada, the cost of renting homes is also growing at an alarming rate.
The main calculation to note for the Property Price Index is the “Price to Income Ratio”. This ratio shows the price of homes as it relates to the average salary of the person, and is expressed as years of income. In other words, a price to income ratio of 1.00 would mean that approximately one year of income would be needed to purchase a home. When looking at this metric, the price of homes in Canada is almost 2x the price of homes in the US.
Canada has a ratio of 7.53, while the US has a price ratio of 3.99. This means that to pay for a house in cash the average Canadian would need to work for just under 8 years. Twice as long as the average American.
The same holds true for renting, where it is almost twice as expensive in Canada as in the US. In the index above this column is either “Price to Rent Ratio City Centre”, or “Price to Rent Ratio Outside of City Centre”. Both show that per sqft it is almost twice as expensive to rent in Canada, regardless of proximity to a city, then it is to rent in the US.
4. Vehicle, Fuel, and Vehicle Insurance Prices
Studies have shown that on average Canadians pay 20% more for a vehicle than in the US. On top of that, the Canadian fuel prices are just under twice the price per litre. This compounds to make owning a vehicle in Canada for expensive overall than owning one in the US. Below is an infographic showing the various prices of vehicle-related expenses across both countries.
Simply looking at an at-the-pump price comparison of fuel costs the price of gas in Canada is an average of $1.12 per litre, while in the US it is $0.68 per litre. As a comparison, Canadian fuel costs have not been at or below $0.68 (what the US currently is) since February 2004. This increased fuel cost, together with the distance (mentioned later on) adds up when it comes to the higher costs of living in Canada.
5. Size of Country and Costs Associated with That
Canada is the second-largest country in the world when it comes to landmass, with a population 10% the size of the US, and that comes with some challenges. Canada is rather unique in that, except for the GTA, there aren’t many of us, and we are all far away. If Manitoba (our largest non-island, non-territory province) were to be a US state it would be the third-largest state in the country, behind only Texas and Alaska, while our largest non-territory of Quebec is the same size as approximately two and a half Texases. That is an enormous amount of area, and it all comes with increased costs.
Some of these costs are relatable as commutes between major cities in each province take multiple hours, driving us the amount spent on fuel, repairs, etc. However, some are less noticeable, as the increased cost of shipping. When shipping goods across a country as large as Canada it gets expensive and this can carry over to retail stores, food, etc. Anything that gets shipped gets more expensive and makes it a more expensive place to live.
While flights are not an issue that affects everyone, for those that do fly the added costs of flying out of Canada can make it even harder to save for vacations or retire early. Simply comparing the flight costs between two destinations essentially the same distance away can show the drastic price difference between flying in Canada, and flying in the US.
Note: I am grabbing these dates for February 11, 2022 to February 18, 2022. Hopefully, this avoids pandemic pricing, but because of the pandemic prices are a bit weird.
Note: For these costs I am using Google Flights to find the cheapest flight, but I am excluding budget brands, but even including budget brands the difference in price a sa percentage is similar.
For the Canadian flight, I am using Vancouver (YVR) to Toronto (YYZ), a flight that is about 3,355 kilometres or 2,085 miles. There are fairly regular non-stop flights between the two, and both are fairly large international airports.
For the US flight, I am using Seattle (SEA) to Houston (IAH), a flight that is about 3,016 kilometres, or 1,874 miles. similar to the Canadian flight both are fairly large international airports with regular non-stop flights between them.
Similar flights, similar distances. Very different prices.
For the inter-Canada flight, after taxes and fees, the flight would be $901 per person round-trip. This doesn’t include baggage and is flying economy. While the inter-US flight would be $406 per person round-trip. This does include baggage and is flying economy. That is a 221% more expensive flight in Canada than in the US. This huge increase can mean the difference between taking a vacation or not for many.
7. Every other tax (Fuel, Alcohol, Flights, etc.)
Income tax isn’t the only form of tax paid by people. All provinces and states have implemented what many call “Sin Taxes”. These are taxes on alcohol, cigarettes, marijuana (in Canada and some States), etc. In addition to these, there are fuel taxes, flight taxes and national sales taxes (Canada only). I’m going to focus on 3 of these as they are the easiest to explain and illustrate the difference. National Sales tax, alcohol tax, and fuel tax.
National Sales Tax or GST
A national sales tax is a tax that is applied to every item you buy, regardless of its amount, quantity, etc. It is applied directly at checkout on all items you buy, rather than collected at tax time like all other taxes. This can be imposed on both a federal and provincial level and is only in Canada. On a federal level, this is referred to as General Sales Tax (or GST), and on a provincial level, it is referred to as Provincial Sales Tax (PST). Frequently these are charged together and would appear on a bill as Harmonized Sales Tax (HST).
The GST rate across the country is 5%, while the PST varies across the country from as low as 0% in Alberta to as high as 10% in the maritime provinces. This means that you will be charged an additional 5-15% on every single purchase you make, across the country.
Note: There are several exemptions to GST for particular goods. The main one being “basic groceries”. This category includes meat, dairy, vegetables, etc. Essentially all healthy foods. For a full list of all GST exempt products check out this list.
An alcohol tax is a tax applied specifically to the sale of liquor. It applies to all buyers, from corporations to individuals.
Beer Canada did an amazing study in 2018 regarding the difference in taxation between Canadian alcohol and US alcohol. In this study, it was found that Canadians paid between 5x and 13x MORE TAX on liquor. While liquor is not a part of many people’s lives and is easily cut out if saving money is your number one goal, for those that do choose to drink the amount of tax paid in Canada is incomparable to the low amount paid in the US.
Similar to alcohol tax a fuel tax is a tax applied at the pump to all purchases of fuel and is included in the price of gas when you pay for it. In Canada this comes in three parts, a federal tax (10c/L + 5%), a provincial tax (6.2-27c/L + 0-10%), and a Carbon Levy (4.42 – 8.89c/L). In total, this amounts to a tax rate of 20.62 – 45.89c/L. Plus the addition of the sales taxes. Meaning that almost half of the cost of fuel in Canada is comprised of taxes.
Compare this to the US, where there is a federal tax of 4.6c/L and a state tax of 3.66 – 15.3 c/L. for a total of 8.26 – 19.9c/L. Almost half of the rate of Canada, all without the addition of a national sales tax. Similar to many other taxes, while not everyone drives this lower rate of tax affects the prices of everything. From shipping to driving, everything is affected when there is a lower tax rate.
8. Cell Phone and Internet/TV Plans
While the large difference in prices between Canada and the US is quickly shrinking in these fields it is still very much present and in a startling way. The biggest area the two countries differed for an extremely long time was in cellphone data. For multiple years before Canada had offerings above 10GB, the US had offered unlimited data plans. Recently Canada also got these plans but the prices are 2-5x more expensive than their US counterparts.
For comparison, I will look at cell phone plans from both Bell and AT&T. Both large national carriers across their respective countries and both offer unlimited data plans. However, even there the plans are hard to compare as AT&T’s most basic plan is better than Bell’s best. However, for this article, we will compare the Bell “Unlimited 50” plan, which includes 50GB of max speed (LTE+) data, at $125/mo, with the AT&T “Unlimited Extra” plan, which includes unlimited LTE+ data, and 50GB of 5G, at $40/mo.
Comparing the two there is a clear winner. For a little under a third of the price, the AT&T plan offers more in every respect. Faster data speeds, more data, streaming, a separate hotspot data amount, and you can use your phone the same across all North American countries. all of those features are either not even available in Canada or are an additional fee. To have the same plan in Canada that AT&T offers for $40/mo would cost an enormous $145/mo in Canada. 3.6x the price. This level of difference in prices quickly adds up to even more expenses for an already expensive nation.
The final way living in Canada is more expensive than in the US is through government monopolies. This is an issue that does vary by region and province but throughout the country, there are several government monopolies that are extremely expensive for the consumer, with no alternative. The three areas where this is most striking are banks, airlines, and telecommunications.
Like other things on this list the world of banking in Canada is slowly changing, kind of. While there is more budget, online-only style banks popping up that don’t have all of the disadvantages of the Big Five (RBC, CIBC, Scotiabank, BMO, and TD), they are still usually owned by one of them. Tangerine is owned by Scotiabank, Simplii by CIBC, etc. However, for the big five banks service fees, and peripheral fees are growing every year, with Canadians paying extremely high bank fees.
A study conducted by Ratehub found that for the average Canadian their monthly chequing fee can cost them up to $360 per year in fees. On top of that, most Canadians do not switch their primary bank more than once every three years. So while the banking monopolies in Canada are improving they are not quite there yet.
I will only briefly touch on airlines as I did a whole section on flights earlier, but in Canada, there is essentially a duopoly when it comes to airlines. While neither are now publicly owned, Air Canada was for many years. this has led to only two major airlines operating in Canada, Westjet, and Air Canada. While Air Canada primarily focuses on international travel and major hubs, Westjet is fast growing into this area and between the two of them has managed to raise costs for flights to 2-10x what it costs in the US.
Similar to many industries in Canada the telecommunications sector only has three major players. Bell, Rogers, and Telus. Between the three of them, they control over 80% of the telecommunications sector, with Shaw (only in Western Canada) being a very distant fourth. Like the banking situation, there is change slowly coming to the industry as new, smaller, budget-friendly companies rise. But these companies are usually owned by one of the larger companies. Rogers owns Fido, Telus owns Koodo, Shaw owns Freedom, etc.
This small amount of choice has led to higher prices, more expenses, and an overall more difficult time saving and growing money in Canada.
Overall Canada is an expensive place to live. Especially when compared to its closest neighbour of the US. Between immensely higher taxes, monopoly-dominated industries, higher fuel costs, a large country, and a similar wage potential to the US it can be harder and harder to pursue FIRE in Canada. And while this may sound like an excuse, or discouraging, it isn’t meant that way. While there are barriers within Canada for saving and growing money there are also a lot of unique advantages.
I will have another article coming out next month all about this and how living in Canada can make it easier to pursue FIRE.
For now, keep in mind the issues I mentioned and don’t compare yourself apples-to-apples against a US counterpart. Instead, focus on doing your best working saving and growing your money in this wonderful country we live in, and let me know if I missed anything in the comments below!