Thursday, May 21, 2015

Generation squeeze revisited

In the 1980s, the typical senior not Boomer, was four times wealthier than the average 20-something. Today’s seniors are now on average nine times richer than their Millennial grandchildren. In fact, many of the trends and policies that have worked in favour of seniors have come at the expense of younger generations

Seniors have seen their wealth quadruple since 1984, according to a Bank of Montreal study released last month, far outpacing the growth of wealth among younger Canadians. The stunning transformation of the balance sheets of the elderly is thanks to a combination of financial discipline, public policy, and good timing.

Many of today’s seniors were the babies born in the aftermath of the Great Depression who learned to abhor debt and save aggressively. (The average Canadian senior has a debt load equal to just five per cent of their total wealth, compared to a 99 per cent debt-to-wealth ratio for their Boomer children.)

Many benefited from decades of economic growth while being spared the brunt of the 2008 meltdown because they had already shifted their savings into low-risk investments when they retired

Forget fears about a retirement crisis in Canada—the one where cash-strapped seniors will outlive their savings and suck the government coffers dry. Seniors may eventually become the only thing that drives the economy.

Canadians age 75 and older make up less than seven per cent of the population, but control more than a third of all financial assets in the country—roughly $1 trillion worth of stocks, bonds, mutual funds and cash. That figure does not even include the money locked inside their homes, which have more than quadrupled in value since the 1980s. Far from running out of money, many seniors actually continue to save well into their golden years.

One of Canada’s foremost experts on retirement has estimated that senior couples save or give away an average of 18 per cent of their incomes—rising to 30 per cent for the wealthiest families.

That certainly makes them generous. However, considering the wealth they have does it mean they should continue to get seniors-only discounts or qualify for government benefits like CPP and OAS?

Despite their affluence, seniors remain disproportionately the beneficiaries of government subsidies and tax breaks. German think tank Bertelsmann Foundation has called Canada among the “least intergenerationally just” countries in the world, with a troubling large gap between the poverty rates of seniors and children and a strong “elderly bias” among government programs and tax systems. It found we spend nearly four times as much on support for seniors as we do on children and have roughly $250,000 worth of government debt for every child, an indication that future generations will be paying for the excesses of previous ones.

It is easy to blame seniors for stacking the deck in favour of their own generation. However, in many ways it is actually younger Canadians who are to blame for the lack of public support for their issues. Turnout among younger voters is notoriously low, so politicians naturally target their campaigns to the seniors who actually show up on Election Day.

Many young Canadians also seem to support the idea of boosting spending on seniors—even at the expense of their own generation. Generation Squeeze advocates have polled Canadians, both young and old, asking them which age group should be the top priority for government.

Not surprisingly, 70 per cent of seniors said politicians should focus on them. However, they found that younger Canadians were just as likely to say governments should prioritize seniors, as they were to say they should help their own generation. Younger Canadians, like older Canadians, believe the stories about who is most vulnerable still in society.

These stories are increasingly outdated because they’re based on the big policy challenges of the past and a failure to recognize that the situation has really changed. So should government reduce spending on seniors, I suggest not. 

Boomers are already starting to retire and they do not have the same wealth as the seniors of a generation ago. Boomers have a high debt to asset ratio, their savings were impacted by the 2008 meltdown and they do not control the same amount of wealth their parents do today. We need to, as a society, continue to focus on the needs of the Boomers but we also need to recognize that younger Canadians need more help and we should start to shift our resources to meet their needs as well.  Lets rebalance some of the spending so it is more equal.

However, politicians will not spend money on the younger generation, unless younger Canadians get out to vote and that is not happening. 75% of Canadians aged 65-74 voted in the 2011 federal election. Compare that to less than 39 % of those aged 18-24. This is a trend that goes back at least a decade.
Some would argue that this trend implies that the downward spiral that is structural, that younger Canadians won’t “grow into” voting; instead, they will never bother voting at all. As older Canadians disappear into that great voting booth in the sky, new voters will not replace them. Unless something changes, a crisis of electoral legitimacy may be on its way.Until politicians see that younger Canadians vote, they will not pay them any attention, and that is a shame.

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