The Impact of Education and Aging on Real Wealth Management

When fewer, younger taxpayers must pay most of the taxes while looking after both the elderly and minors, it’s much more difficult for them to accumulate assets for their future, and get good returns on their investments in this environment of de-population.

Here’s why: The fact that so many rich countries will experience an ageing recession at the same time will affect consumer demand, corporate profits, asset values, and balance sheets. As much was predicted in an interesting report back in January 2002, Depopulation and Ageing in Europe and Japan: The Hazardous Transition to a Labor Shortage Economy[1].

A family’s wealth can drop significantly when financial or housing markets fluctuate as a result of population declines. The financial negatives are worse when there is too much debt (a concern again expressed by Bank of Canada Governor Poloz late last year).

The same is true of governments: Slowing economic activity results in fewer tax dollars to pay for important social benefits. All taxpayers will be forced to pay more for rising senior-related costs like the Old Age Security (OAS), for example. This line item alone will balloon from $46 Billion in 2015 to $48.4 Billion in 2016, $60.2 Billion by 2021, and over $109 Billion by 2040. This obligation will impact future wealth builders.

If you live in Canada, you already have a healthy head start to building great wealth. We are fortunate that only 3.5% of Canadian family units have little or no wealth. It is also clear who these people are and that their circumstances are not necessarily permanent. According to Statistics Canada:[2]

  • The Young: 15- to 34-year-olds. Money management and savings skills are critical to this cohort, who set spending and saving habits in these formative years. The young have a singular advantage over everyone else: time. When you have both time and money, your odds of becoming wealthier multiply significantly, especially with the right principles in place.
  • The Uneducated. These are people who haven’t achieved a high-school diploma. Education is critical to financial success later in life, a key factor in the ability to earn sufficient income to buy a home and invest in the financial markets.
  • Singles. Unattached individuals and lone-parent families have the most difficulty accumulating wealth. It’s important to think carefully about the financial circumstances in which a family is raised and for society to help with opportunities for education, child care and meaningful work.

Simply put, educated people make more money and accumulate more wealth. If they manage to stay in sound relationships, their odds improve for achieving financial success over their lifetime.

Excerpted from Family Tax Essentials: How to Build a Wealth Purpose with a Tax Strategy, by Evelyn Jacks, available in e-book or hard copy format, with a volume discount for 10 or more copies.

 

[1] By Paul S. Hewitt

[2] Statistics Canada, March 23, 2015, Canadian Financial Capability Survey

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