SOCI 373 Lecture Notes - Lecture 10: Venture Capital, Millennials, Savings Account
19 Jun 2018
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Finances in the context of Aging
Lived experience- how do people experience their finances- satisfaction? Financial strain?
Reflects ability to meet basic needs? Tension between needs and financial resources.
People tend to decouple evaluation of financial condition from actual financial conditions as they
age- people try to reconcile themselves to their current status.
Satisfaction is an evaluation, how people think about their lives. Implies a convergence of
aspiration and achievement. Did we accomplish what we wanted to accomplish?
Satisfaction may not reflect financial adequacy. People may adjust their goals based on their life
coarse circumstances.
Sen- you can be satisfied if you learn to take pleasure in realistic pleasures.
Age and cohort effects are essential when examining financial satisfaction. Within cohorts
financial satisfaction increased over time- as people age they become more financially satisfied.
Younger cohorts were less financially satisfied than older cohorts. Could be changing social
structure, younger cohorts have fewer economic opportunities. Could be a case of changing
expectations, do younger cohorts have greater expectations for wealth?
-How much trouble on a monthly basis do you have paying bills(for basic needs)? Measures
economic hardship through lived experience.
-Material hardship- what can you afford or not afford? Also measures lived experience.
Income is not relevant to daily life for older adults, and wealth is often hard to judge.
liquidity=access to cash from your stored wealth.
Is age positively or negatively related to financial strain?
Less strain- no longer need to purchase ‘big ticket’ items. No longer paying mortgage. Acquired
efficiency, people become better at managing their resources.
More strain- late life is a time for cessation of income, you must depend on accrued wealth.
Health problems often sap financial reserves. Many types of care you require will not be
covered by universal health care.
Individual age within cohort is positively correlated with financial strain.
Cohort age is negatively correlated to financial strain.
^due to acquired efficiency. Decreased expectations.
There is more likely to be an increase in financial strain within a cohort- but it depends on the
cohort within which you are a part of, whether or not your cohort came of age during economic
crisis.
In what cohort were you born and which advantages/disadvantages did you have? These are
the big factors on financial strain as you age
In summary: positive effect of age. Age of cohort has a negative effect.
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In the future: younger cohorts appear to be at greater risk for financial strain in late life- maybe
because of increasing emphasis on consumption.There may be less acquired efficiency
because there has been less financial difficulties to overcome. The way that work is structured
has been changing- less ‘standard employment’, the kind of pensions available are changing
People are spending more on their housing than they are putting in their savings- example of
structural causes for less financial stability.
Older cohorts have less financial strain and this covers up the effect of age.
One way of understanding individual experience of aging and finances is through tolerance for
financial risk- examining people’s ratio of risky assets to wealth, also by simply asking people
how much financial risk they are willing to take.
People were less tolerant to risk with age but there is an important cohort differences- younger
cohorts are more tolerant of risks, could be an acquired efficiency issue.
Period effects- recessions create period effects and that appeared to be decreasing tolerance
for financial risks. Overall though, as people age they are less willing to take risks and younger
cohorts are more willing to take risks.
The presence of period effects shows how decreased growth of the last decade is influencing
individual choices.
Low Income Measure LIM - 50 % of median family or single income after tax transfers and
adjusted for family size. A measure of relative poverty that reflects inability to pay for needs.
In 1970s 37% of seniors had low income
In 2006 10%
In 2016 14.2%- coming out of a fairly major recession, maybe because the younger cohort was
less prepared for aging
LICO- low income cutoff- adjusted annually according to consumer price index. Takes
community size and family size into account. After tax LICO reflects disposable income
available to purchase necessities. Estimates and income threshold at which a family will spend
more than 20% than the average family on food, shelter, clothing.
Then divides groups into economic families.
LICO rate for seniors: 2006- 5.9%, 2016- 4.7%
For seniors not in economic families there is far greater chance of being below the LICO.
Market Basket Measure (MBM)- establishes a minimum level of income necessary to attain a
standardized basket(designed for family of two parents and two children) of basic necessities.
LICO has gone down, MBM has gone up.
****know the three measures and know the trends***
What keeps seniors out of poverty? High levels of education, good health, living as a couple,
history of full time employment
A combination of gender and social isolation is critical.
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Highest risk for poverty is being a woman and not being in an economic family.
03-27-2018
Toys R Us- in 2005 the company was bought out by a group of venture capitalist firms. This was
a leveraged borrowed the money they needed using the company itself as collateral. The debt
itself then gets dropped onto the books of the acquired company. Manipulated the story to seem
like millenials not having enough babies was the reason their company was going out of
business.
Expenditures and aging- the income needed to ensure a min level of consumption to avoid
poverty during retired years may be less than during working years. Ex. clothing, transportation,
housing costs go down, healthcare costs may go up.
Issues with all measures it requires making a judgement at which threshold one experiences
poverty- this may not be accurate.
For many seniors, transfers tend to go in direction towards offspring and grandchildren- the
ability to provide assistance
Why do canadian seniors do okay in terms of poverty? People with income at 50% of national
average will replace 90% of their income from government sources in retirement. Wealthy
seniors replace 70% of their pre-retirement income. Low income seniors replace 110% of their
age 55 income. There is a redistributive aspect to the canadian social insurance system
especially for older adults. To a small extent financial support for seniors is geared to help those
who are especially vulnerable to fall into poverty.
Older adults may be more settled- they do not have as many expenses. Reduced income does
not equate to increased need.
Fixed pensions are typically not inflation indexed. Inflation may eat into what their pensions can
provide.
Canada Pension system:***
Universiality- everyone in canada has the right to a public pension regardless of income
Income security programs- help people meet their basic needs, available ot everyone
Income maintenance programs- help people maintain pre retirement income.
Canada’s retirement system has three tiers: Bottom- income security programs. Middle- income
security program Top- private income, investment, savings.
Access decreases as we go up the pyramid.
Government transfers (federal transfer programs): Tier One
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
People tend to decouple evaluation of financial condition from actual financial conditions as they age- people try to reconcile themselves to their current status. Satisfaction is an evaluation, how people think about their lives. People may adjust their goals based on their life coarse circumstances. Sen- you can be satisfied if you learn to take pleasure in realistic pleasures. Age and cohort effects are essential when examining financial satisfaction. Within cohorts financial satisfaction increased over time- as people age they become more financially satisfied. Younger cohorts were less financially satisfied than older cohorts. Could be changing social structure, younger cohorts have fewer economic opportunities. Income is not relevant to daily life for older adults, and wealth is often hard to judge. liquidity=access to cash from your stored wealth. Less strain- no longer need to purchase big ticket" items. Acquired efficiency, people become better at managing their resources.
