Life Cycle and Demographics

Question 1

what are the 5 phases of the family life cycle?

Answer 1

1. early career phase
2. mid-career phase
3. peak-accumulation phase
4. pre-retirement phase
5. retirement phase

Question 2

what is the financial life cycle?

Answer 2

people have a limited life expectancy, and during their lives they go through stages of differing financial positions and earning pwoer

Question 3

what are the 4 pillars of the financial services sector?

Answer 3

1. banks
2. trust companies
3. insurance companies
4. investment dealers

Question 4

what is financial intermediation?

Answer 4

it is the process of transferring money from surplus economic units to economic units that have a productive use for the money. intermediation takes place between sectors and over time.

Question 5

what are the 4 effects of demographics?

Answer 5

-labour markets
-career choices
-market demands
-government policies

Question 5

why has the distinction between these pillars become of lesser importance in Canada in the past 20 years? (4)

Answer 5

1. regulatory changes
2. technological advancements
3. market forces and competition
4. globalization

Question 6

what are demographics and what 4 things do they include?

Answer 6

-population growth (births, deaths, net immigrations)
-age distribution
-family structures
-income and education levels

Question 7

what is the baby boom generation?

Answer 7

9mil babies born from 1946-1966

Question 8

what are the trends of the baby boomers in 1970s

Answer 8

-many entering labour force
-government focussed on job creation
-shortage of capital to finance new cars and homes

Question 9

what are the trends resulting from baby boomers in the early 2000s?

Answer 9

-price of 4-bedroom homes should drop
-smaller homes, condo values should rise

Question 9

what are the trends resulting from the baby boomers in 1990s?

Answer 9

-peak earning period for boomers
-1st properties paid off, many buying second or vacation property, with a sharp increase in their prices
-financial industry offers many savings, investment and tax-shelters

Question 10

what are the trends resulting from baby boomers in the 2020s?

Answer 10

-20% of population will be over 65 (12% in 1991)
-life span probably will rise another 5-10 years
-government pension plans in trouble unless rescued
-impact on company pension plans
-investments geared to health services, senior population should do well

Question 11

what generation is generation X ?

Answer 11

born 1965-1980

Question 12

what generation is the sandwich generation?

Answer 12

the generation includes anyone sandwiched between a parent 65 or older and a child who receives at least their financial support

Question 13

what are the 6 priorities of the early career phase?

Answer 13

-savings for liquidity
-educational savings
-first/larger home
-life & disability insurance
-property & liability insurance
-financial implications of marriage, children, day care

Question 14

what is the age and characteristics of the early career phase?

Answer 14

age = 20s-30s
-long “time horizon”
-growing income stream

Question 15

what are the investment choices in the early career phase?

Answer 15

high-return/high risk capital gains oriented investments (instead of secure components)

Question 16

explain the mid career phase

Answer 16

-your income has grown (2 spouses working)
-expenses moderating (children in school/no daycare) and (larger home may be needed
-income exceeds expenses
-assets are more diversified (home equity has grown) (investment portfolio growing) (retirement program benefits growing) (vacation property, boats, etc)
-liabilities (debt reduction important)

Question 17

what are the characteristics and age of the mid-career phase?

Answer 17

-age= late 30s - 40s
characteristics
-fairly long “time horizon” until retirement (20-30years)
-risk control needed

Question 17

what are the investment choices in the mid-career phase

Answer 17

moderate risk
-high-return/high risk capital gain balanced with some lower risk assets

Question 17

explain the peak-accumulation phase

Answer 17

-wealth accumulators (substantial net worth)
-income is growing (both spouses working)
-expenses have declined (children have left home) (larger home not needed) (less need for “things”
-more funds for investment/savings
-assets more diversified (home equity substantial) (investment portfolio growing) (personal/private retirement program benefits growing)
-liabilities (mortgage nearly paid off)
-other goals (recreation) (travel) (health)

Question 17

what are the characteristics and age of the peak accumulation phase?

Answer 17

age= late 40s - 50s
-fairly long horizon to retirement (10 to 25) years
-some risk control needed

Question 18

what are the investment choices in the peak accumulation phase?

Answer 18

moderate risk
-growth needed & tax minimization

Question 19

what is the age and the characteristics of age for the pre-retirement phase?

Answer 19

age = late 50s - early 60s
-early retirement may be available
-little/limited chance for employment
-horizon still quite long (life expectancy: 85-90) (horizon: 25 to 35 years)
-parents may be dependents
-legal affairs should be in place (will) (trust)

Question 20

explain financial independence and gifting phase during the retirement phase

Answer 20

living expenses
-may be new living arrangements
-probably reduced expenses
-covered by income from and accumulated assets (investments and retirement assets)

Question 21

explain what some investments should provide in the retirement phase

Answer 21

-safety
-growth
-inflation-hedge potential

Question 22

what are the characteristics of age in the retirement phase?

Answer 22

-retirement work: paid or volunteer
-horizon still quite long (life expectancy: 85-90) horizon: 10-20 years
-often more assets than needed
-risk/return attitudes may be same
-purpose of investments change
-typical goals: assets for an heir, charitable donations,

Question 23

what is the use of the family life cycle for a financial planner?

Answer 23

-identify stage for client
-focus on most relevant issues relating to that stage (but everyone is different)

Question 24

explain the first step of the financial planning hierarchy

Answer 24

build a supporting foundation
-career
-housing
-cash reserves
-adequate insurance

Question 25

explain the second step in the financial planning hierarchy

Answer 25

investment in secure instruments
-long term savings deposits
-government securities
-annuities

Question 26

explain the third stage in the financial planning hierarchy

Answer 26

gradually take greater risks
-high quality stocks and bonds
-income producing real estate

Question 27

explain the fourth and final stage of the financial planning hierarchy

Answer 27

avoid risky investments until secure at lower levels
-growth stocks
-gold
-raw land

Question 28

how have Canadian fertility rates changed since the 1920s?

Answer 28

-they have fallen mostly except for a peak during the baby boomers being born