Tuesday, June 20, 2023

Personal financial advice: Cheese sandwich edition

This is Joseph

There is a genre of budget advice that is just about closing a small gap in finances. Most of the time, when I have been skint, this advice was useless. It worked well when I had a junior position and lived in an inexpensive apartment. But if you are really poor it works badly (stop buying Lattes is bad advice to people who are worried about loaves of bread). It got especially bad when we saw avocado toast consumption as the barrier to housing down payments. The median house price in Toronto is 1.27 million (yes, a 20% down payment is over $250,000!) and a typical after tax income is $50,000. The average rent for a one bedroom apartment in Toronto is $2,500 (so $30,000 a year) and you have $20,000 left for food, clothing, medical care (Rx drugs are not covered by OHIP), transportation, and entertainment. If someone managed to save half of their after tax and rent income (15% of gross so above the normal save money book threshold) that is a cool 25 years of savings. If house prices stay stable. 

It wasn't the toast. 

Even two ambitious young people who both save a ton to form a family are getting their house in their mid-30's without help -- on the late side for family formation. 

So this is the context where the UK is going insane about the cheese sandwich. Yes, a cold sandwich with soft sandwich bread, butter, and cheddar cheese inside it. These sandwich have gotten more expensive post-Brexit, as food inflation in the UK has now hit a 45 year high. Is it any surprise that the government response is to eat fewer cheese sandwiches? Yes, a Brexit party member, former conservative, and now a reform party member is suggesting that very basic food items just be eliminated because of rising costs:
Citing inflation in the 1970s she added: 'We just have to be as grown-up about this as we can and stop thinking it is solely a UK problem, because it isn’t.

'We also just have to learn the lessons of the past, which is that prices follow wages, follow prices, follow wages.'

Presenter Jo Coburn asked: 'What do you say to consumers who literally can’t afford to pay for even some of the basics if they have gone up the way that cheese sandwich has, with all its ingredients?'

She replied: 'Well then you don’t do the cheese sandwich ... because we have been decades without inflation we have come to regard it as some sort of given right that our food doesn’t go up.

A few thoughts in this nightmare response. One, is not the UK government trying to stop wages from increasing? Was there not a medical doctor strike over this?  Or a university strike? Or the teachers strike? So obviously this is not just a wages and prices are both adjusting cycle. 

Two, cheese sandwiches are really basic and not an expensive meal option. 

[I know, real economy experts like Mark will tell me that there are better options than a cheese sandwich for inexpensive eating. He will be right. But it is a very nice blend of inexpensive ingredients (the butter is a ton of sandwiches at $5/lb, the bread is $1.50 for 20 slices if you shop at all, 2 lbs of cheese is $12). The recipe earlier was 3.5 ozs cheese ($1.30), 2 slices of bread (15 cents), and butter (looking at serving sizes, 25 sandwiches per lbs is generous so 20 cents). That is 1.70 cents for a lunch item, mostly the cheese, which doesn't have the allergy problems of fillers like peanut butter.]

If a cheese sandwich is an unaffordable luxury then something has gone very wrong. 

Finally, this is all rearranging deck chairs. Food becoming a serious financial stress again is undoing a generation of progress in improving quality of life. Seeing it end should be seen as a real crisis of poor governance, and not a chance to lecture people on their food choices. The real issue is rent is out of control in a lot of the anglosphere and that is feeding into a general cost of living crisis (note my examples mix two anglosphere countries, Canada and the UK, but could add in New Zealand too, if one was really motivated). 

The worry is affordability. If you do a major policy change that increases costs then it would make sense to make sure that there is a very clear benefit. I can see the same issue in Canada. 

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