Life Cycle and Demographics Flashcards
what are the 5 phases of the family life cycle?
- early career phase
- mid-career phase
- peak-accumulation phase
- pre-retirement phase
- retirement phase
what is the financial life cycle?
people have a limited life expectancy, and during their lives they go through stages of differing financial positions and earning pwoer
what are the 4 pillars of the financial services sector?
- banks
- trust companies
- insurance companies
- investment dealers
what is financial intermediation?
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.
what are the 4 effects of demographics?
-labour markets
-career choices
-market demands
-government policies
why has the distinction between these pillars become of lesser importance in Canada in the past 20 years? (4)
- regulatory changes
- technological advancements
- market forces and competition
- globalization
what are demographics and what 4 things do they include?
-population growth (births, deaths, net immigrations)
-age distribution
-family structures
-income and education levels
what is the baby boom generation?
9mil babies born from 1946-1966
what are the trends of the baby boomers in 1970s
-many entering labour force
-government focussed on job creation
-shortage of capital to finance new cars and homes
what are the trends resulting from baby boomers in the early 2000s?
-price of 4-bedroom homes should drop
-smaller homes, condo values should rise
what are the trends resulting from the baby boomers in 1990s?
-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
what are the trends resulting from baby boomers in the 2020s?
-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
what generation is generation X ?
born 1965-1980
what generation is the sandwich generation?
the generation includes anyone sandwiched between a parent 65 or older and a child who receives at least their financial support
what are the 6 priorities of the early career phase?
-savings for liquidity
-educational savings
-first/larger home
-life & disability insurance
-property & liability insurance
-financial implications of marriage, children, day care
what is the age and characteristics of the early career phase?
age = 20s-30s
-long “time horizon”
-growing income stream
what are the investment choices in the early career phase?
high-return/high risk capital gains oriented investments (instead of secure components)
explain the mid career phase
-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)
what are the characteristics and age of the mid-career phase?
-age= late 30s - 40s
characteristics
-fairly long “time horizon” until retirement (20-30years)
-risk control needed
what are the investment choices in the mid-career phase
moderate risk
-high-return/high risk capital gain balanced with some lower risk assets
explain the peak-accumulation phase
-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)
what are the characteristics and age of the peak accumulation phase?
age= late 40s - 50s
-fairly long horizon to retirement (10 to 25) years
-some risk control needed
what are the investment choices in the peak accumulation phase?
moderate risk
-growth needed & tax minimization
what is the age and the characteristics of age for the pre-retirement phase?
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)
