Thursday 10 July 1997

Boomers 'won't blow' $1-trillion windfall

Investment funds likely to reap rewards
of continuing inheritance bonanza

Colin Freeze
The Ottawa Citizen

From now until 2015, Canada's largest demographic group will reap a fortune as their parents meet the ultimate misfortune. It is estimated the most affluent generation in Canadian history stands to inherit a $1-trillion windfall.

The big question for money managers and retailers is: how will the baby boomers spend it?

A Gallup poll released yesterday finds boomers, or the 9.8 million Canadians born between 1947 and 1966, will spend cautiously. The Investors Group, a large Winnipeg-based mutual fund company, commissioned the poll, which consulted more than 1,000 Canadians.

Of those surveyed, 23 per cent said they will invest their inheritance --nearly six times the number of people who said they would use the money to fund a major purchase.

"Very few people suggest they are going to put the money into leisure-time activities such as vacations or buying new things for themselves," said Sandra Metraux, a senior vice-president of the Investors Group. "Certainly we don't expect to see a consumer spending spree when this money goes from one generation to the next."

Nineteen per cent say they will use the inheritance money for their children's education. Twelve per cent will use it to pay off debts. Tight-fistedness, not frivolity, characterizes the spending plans of the generation.

A pop singer of the generation once said he hoped he died before he got old

Now, it seems the aging boomers merely want to secure a comfortable retirement, and not rely on government-funded pension plans, before they die.

"They're very serious-minded, and very sensible and responsible about how they plan to use the money," said Ms. Metraux. "They are thinking about their retirement ... this is a continued trend. Canadians are realizing they can't rely on their governments to take control of their retirement."

The group says the generational transfer will involve between eight and 10 million bequests, and consist primarily of cash, real estate, and investments.

The author of the best-seller Boom, Bust and Echo, said cautious spending characterizes every aging generation.

"There's nothing unique about being in the baby boom," said David Foot, a professor at the University of Toronto. "You take a little bit for a vacation, you take most of it for your retirement.

"It's going to continue for the next 20,000 years probably."

Mr. Foot said because inheritance money is not new money, because it tends to stay in savings and investments, and because boomers have already bought their real estate, homes and vehicles, the economy will change little.

"It goes from one saver to another saver, all you do is just change the name on the stock certificate or whatever. It has no impact on the capital markets. Only if it skips a generation does it have an impact on the economy," he said.

The Ottawa-based author of The Pig and the Python: How to Prosper from the Aging Baby-Boom, agreed with that sentiment.

"If a lottery winner is 22, that's a lot different than a lottery winner at 50," said David Cork.

The Gallup findings largely confirmed what he already believed.

"At this stage in their life the boomers are only thinking about three things anyway. They're thinking about reducing their mortgage, putting money away for their retirement, and they're thinking about their children's education."

But he expected retirement savings plans and mutual funds to be beneficiaries of the long-term spending habits of baby boomers.

"The mutual fund industry is exploding simply because these folks are starting to save and invest. I think you're going to see continued pressure," said Mr. Cork.

"We think the inheritance is going to go a long way to help people top up their retirement plan. If somebody suddenly inherits $50,000 and they've got $40,000 of unused RSP room, they may decide its a good idea to put the money in and get a $20,000 tax rebate. I think it is going to be the largest beneficiary of the inheritance."