Financials, Across our Life Course: Fusion and Confusion of Terminology – Part 3

fusionFinancial planning. Financial security. Financial literacy. Financial gerontology. Is it any wonder there is confusion with all this terminology floating in our heads? Not to forget the fusion. As we complete our current series on this subject, maybe it’s not a coincidence that we are now entering the year-end income tax season in Canada.

You can count on a barrage of advertising and news editorials to start any time now, reminding consumers about their retirement plan contributions and other related financial considerations. Turning our concern to personal financials however, should not be a once a year high anxiety moment; nor is it strictly a retirement discussion. Attention to financials issues cuts across our life course.

As a financial planning consultant, Marie says in part one of this series (Nov.30, 2015), personal financial planning is the process of helping individuals and families to use their income and assets to be meet their life goals now and in the future. In that same post, as the researcher and social gerontologist, Suzanne adds that economic and financial issues are important in people’s lives on the journey of aging, but they are also important as public policy issues.

Financial gerontology – public policy issue

Sticking with this term financial gerontology, Marie picks up here by saying that in the macro sense it is an urgent public policy issue. Financial gerontology should become the study of aging and the implementation of measures that will meet the needs of Canadas’ aging demographic. For example, financial, psychological, and general health planning to encompass all citizens from native peoples to immigrant and ethnic communities. The risk is that it will become yet another means of marketing financial products.

The problems associated with an aging demographic are not confined to governments to solve. To be sure, there are roles for all levels of government, but there are also roles for dedicated private groups and for individuals and families. Older adults must also be part of finding their own solutions.

Since we have scarce resources, what is the best use of public monies to meet the unique needs of an aging population? Given the shift and size of aging demographics, it would be very easy to allocate too many scarce resources to satisfying the needs of the aged at the expense of younger people. For example, reducing education funding for younger taxpayers. In consideration of how to determine the best use of these public resources for everyone, would it not be more beneficial that we have a creative inter-generational dialogue?

If financial gerontology is a society-wide, broadly based approach to the costs of aging, then personal financial planning is the specifically focused approach to an individual’s finances – whether they are young or old.

Improving public awareness of how these two professional fields work, (both separately and in fusion), is the challenge, and worth repeating, says Suzanne – financial and economic issues, such as low-income seniors, pension plans and retirement savings are gerontological issues, and they are important personal and public policy issues. Financial security is important for quality of life, and this cuts across our entire life course. However, quality of life goes beyond financial considerations.

Financial & gerontological collaborations

So how do we square the circle around the potential good coming from financial & gerontological collaborations? Let’s go back to the American Institute for Financial Gerontology and their aim to educate a Registered Financial Gerontologist (RFG) on how to “deliver financial solutions in a comprehensive manner with increased knowledge of the older client’s broad based needs.”

There is one significant difference where we say, Suzanne suggests, develop innovative ways on how to better serve “unique needs”, as opposed to deliver solutions to “broad based needs”. Terminology again. When you serve, you determine needs and respond; it is person focused. When you deliver solutions, you provide a product.

So is it possible to effectively combine Financial + Gerontology for older adults; or is it better that two different specialists are required for older client’s broad based needs?
From Marie’s viewpoint as a financial planning consulting – good advisors keep themselves up to date on developments in the financial world, and on general issues of aging, from senior housing to risk prevention in public and private spaces.

But the financial advisor is not in a position to give comprehensive advice about such things as behavioural issues, or health impacts on communities. The gerontologist can offer good background information to the financial advisor, just as the financial planner can offer realistic advice on basic financial issues for the benefit of the gerontologist.

We live in a world of specialization – mainly because there is so much knowledge out there that we cannot be effective if we try to offer services beyond our competency. Keeping up with our own specialties is a full time job!

We are also in the world of collaboration! That is the joy of thinking and writing this series together.
Marie Howes & Suzanne Cook

Why Pensions Divide Us, and Why That Must Change

When pension plans were devised (such as CPP in the 1960’s), the assumption was that people would contribute to the plans over their working lives and at retirement, they would have pensions (partly funded by investment growth) to replace part of their income. Yet no one back then could foresee that investment returns would stagnate, or that many people would retire early and with the end of mandatory retirement, pension plans would be under stress and retirees would live much longer than predicted.

Most Canadians hope that their pensions will pay for at least basic living expenses. But most people expect to pay for extras and want-to-haves as well. The problem is, not all pensions are created equal.

The pension plans for government employees are generally Defined Benefit plans, which guarantee a certain level of income based on such factors as years of service, income level achieved and so on. Private sector employees generally have Defined Contribution plans, or group RRSPs; where the benefits paid out depend upon the investment performance of the contributions made to the plan.  The Defined Benefit plans offered by governments are efficient because of their size and professional management — management which is usually less expensive than what private sponsors or individuals must pay. Between the DB and DC pension plans, there is no level playing field.

The Canadian Federation of Independent Business estimates that to achieve a pension covering 70% of working income at retirement, public sector workers contribute about 7% of their salary. To achieve the same coverage, private sector workers would have to contribute up to 21% of their salary. In addition, public sector pension plans are routinely “topped up” by governments, with the funds coming from taxpayers. Often, companies cannot do such “top ups” except over a longer time frame.

Most government-employee plans are mandatory; often, private employer plan participation is optional. The result is that many non-government employees are leaving work with non-existent or inadequate pensions.

Fairness is an issue between public pension plans and private sector plans. Critics point out that “improved” pensions for private sector employees will have costs, which public pension-holders will not have to bear. A thorough revamping of rules for both public and private pensions is needed to close this great divide.

Marie Howes


The Third Rail: More Pension Dialogue

Examining our current construct around pensions is not unique to Canada. However recent federal and provincial conversations have heated up the debate about pension reform in this country and will likely become one of the top issues in elections upcoming in the next year or two.

In the Planet Longevity Blog Pension Tension (Feb.16),  Marie Howes offered her commentary and Book Review of The Third Rail by Jim Leech and Jacquie McNish (2013). How timely this is now we’re in the lead up to income tax season; and next to the Winter Olympics, everywhere we’ve turned in the last few weeks the advertising for financial planning products with the push for retirement savings contributions and debt management services has filled up media space.

The Third Rail is a must read for all Canadians. To stimulate your thinking on the subject of pensions and perhaps contribute to the dialogue read these links.

Mark Venning


Pension Tension

Commentary and Book Review of The Third Rail by Jim Leech and Jacquie McNish (2013).

Pension plans exist for three basic reasons.  Firstly, pensions ensure an on-going source of income  for people who no longer earn income from employment.  Secondly, pensions provide an income based on a person’s pre-retirement level of income. Thirdly, for those who have had very little income during their working lives, or who have been unable to work, pensions of various types sustain them for the rest of their lives. There is therefore an element of “fairness” in pensions.

Jim Leech, former CEO of the Ontario Teachers’ Pension Plan, and business journalist Jacquie McNish, have written “The Third Rail”, Confronting our Pension Failures.  It should be required reading for every Canadian (and Canadian politicians).  Given the pension disaster which looms for Canadians, younger citizens – the `spectator` generation in particular, should be reading this  book and becoming outraged activists.  If they don’t, they will be saddled with impossibly high taxes to sustain the unrealistic pension promises made to the huge Boomer Generation.  They will also see education and health services for their children undercut by Boomer demands.

The book examines three important case studies. The pension crises of New Brunswick, Rhode Island and The Netherlands, show why and how unsustainable pension plans MUST and CAN be re-worked. The achievable objective is to give pensioners reasonable financial security without bankrupting younger taxpayers.

Pensions are a battleground where private interests and the public interest intersect.

The private interest is essentially the business community which does not want to incur what it considers expensive, uncertain costs to doing business. Individual citizens may also object to giving a “free pass” to those who have saved nothing for their own retirement. 

The public interest is society’s desire to help by providing an underpinning of security for those who have worked all their lives. We also want to ensure that those less fortunate can age with dignity and a reasonable amount of disposable income to meet their expenses.

Next: Why pensions divide us…..and why that must change.

Marie Howes