According to a recent poll conducted by Gallup Canada and commissioned by the mutual fund company, Investors Group, boomers are expected to spend their substantial investment pool wisely by paying off their debts and making investments rather than frittering it away on dream vacations and flashy cars. Canada’s post-war generation stands to gain substantial wealth from parents who saved and accumulated very little debt, and their children will tend to spend wisely, shying away from spending sprees, indicates the survey, which took an in-depth look at how Canada’s baby boomers intend to spend their collective trillion-dollar inheritance.

The poll, conducted in May, questioned over 1,000 Canadians on their spending and investment habits and intentions, as well as their expected inheritance and economic outlook. People aged 50 years and over now control approximately 55 per cent of all discretionary spending and 75 per cent of all personal assets in Canada.

“It is an inheritance that is going to be spent wisely, primarily for re-investment, to pay off debts, or to cover the cost of higher education,” says Sandra Metraux, Senior Vice President, Marketing for Investors Group. “There is no spending spree in sight.” Metraux told a news conference in Toronto that Canada’s inheritance wave is now well underway and is expected to peak about 2015 as a generation of accumulated wealth is passed to baby boomers, their siblings and children. She noted that the size of individual inheritances will be limited by the fact that post-war Canadian families averaged between three and five children, and that income taxes for the final year of a person’s life must be paid by their estates.

Where the money is …

The Gallup poll has simply confirmed what Canada’s leading fundraisers have been saying for almost a decade. Boomers who inherit from their parents are a group that charities and not-for-profits should focus on to bring into the fold, exactly, of course, what many charities across Canada are attempting to do. “As we become more sophisticated in our fund-raising, we are seeing areas that yield great potential and we will be focusing our resources and efforts accordingly,” says Lee Angus, Manager of Revenue Development, Canadian Cancer Society. Planned giving is an area it has promoted actively for the past 15 years – with great success thanks largely to support from provincial divisions. “It’s a priority to us because it brings in a lot of money to support services such as public education and research.”

The expected inheritance for baby boomers is an area everyone is eyeing. “The money the baby boomers stand to inherit from their parents is definitely going to have an impact on charities,” says Angus. “It may not be as substantial as some believe, however, because baby boomers want to be financially secure. They realize that they will live longer, and they also want to play longer. That requires that they be sound financial planners, and perhaps a bit cautious when it comes to spending that money.” Angus believes, however, that the baby boomer generation understands that government cutbacks and a greater demand on social agencies to pick up the slack means that the not-for-profit sector has a big role to play in the next decades. “They may not sign a huge cheque for the charity of their choice but they will definitely make contributions that will benefit the not-for-profit sector,” she predicts.

The survey found that Canadians are paying more attention to financial planning and are investing more heavily in RRSPs, realizing they cannot count on the government to give them a secure retirement. Thirty-one per cent of respondents say they have a financial plan, and two-thirds of those say they’ve updated it in the past year. That is a signal to development departments in charities and not-for-profits across the country: put your resources into becoming involved in the financial planning of the baby boomers and their children.

Boomers won’t be pushovers

“Any charities that believe they are going get a windfall when baby boomers inherit their parents’ money or property are living in a fool’s paradise,” warns Sue Carruthers, Director of Development, Hospital for Sick Children. “We are not specifically trying to target that $1 trillion, but we also recognize that we need to do more to engage our constituents into giving a gift.” Planned giving is coming of age, and as programs mature and more resources are put into this area, targeting certain groups and trying to own a greater piece of the market is inevitable. “We should not simply take it for granted that we will get a large part of the expected inheritance,” says Carruthers. “We need to foster a sense of giving in baby boomers and their children after the older generation, the traditional donors, passes on.”

In the past, men wrote the cheques and women made cookies for bake sales. Since women live longer, traditionally seven years, than men, more money is going to be in the hands of women, and men are no longer the sole decision-makers in families. “We are not looking at little old grandparents who will give their money away; we shouldn’t underestimate them,” says Carruthers. “Many of the women who hold wealth in this country are educated, and we need to look carefully at how we communicate our message to them. Also, as donors are younger than in the past, we need to look at how we do things.” While the new generation of donors may not be as charitably disposed as the previous generation, they are still involved in the charitable sector.

The baby boomers and their children are part of the changing constituency and may not be so easily persuaded to part with the new-found wealth. “They are not just going to give it away,” says Carruthers. “They are not as well positioned to retire as their parents were and this group who is inheriting is debt-laden. You need to tell them about the benefits to them as well as to your organization when trying to convince them to donate.”

Expect a conservative approach to personal financial planning

The survey also shows that baby boomers plan to spend their money in fairly conservative ways. Many feel this money needs to be put to a good purpose, and this is the message that charities need to get across. “When people are deciding how to use mom and dad’s hard-earned money, there is a sense of responsibility to use it towards something that has lasting value. The reason someone is leaving their assets to someone is because they respect him or her. Most of us don’t want to respond irresponsibly to that,” says Gary Edwards, Vice President and General Manager of Gallup Canada, the company which conducted the survey. “It’s something charities need to recognize and take into account when they are doing their planning and development.” Edwards agrees with Carruthers when it comes to the expected windfall. “There’s an expectation level that the size of inheritances will increase. This is not unrealistic, but you can’t count on it one hundred per cent,” he warns.

While the older generation wrote cheques to their favorite charities, the younger generation tends to take a more active role by participating in telethons, taking part in golf tournaments, volunteering and buying lottery tickets. And as fund-raising and revenue generating changes, so do the approaches not-for-profits need to take. “We recognize the potential of the survey findings and we need to adapt to them,” says Carruthers. “Anyone who isn’t positioned at the post when the gun goes off is negligent. We have to present an intelligent case and a tax program that saves donors tax donors. We can’t just sit back and wait for the money to fall into our laps.”

Boards of not-for-profit organizations need to recognize the potential of this survey’s findings and raise their profile in order to tap into the coming inter-generational transfer of capital. If they take aim at the younger generation about to inherit rather than, or as well as, their aging parents who have traditionally donated, they are more likely to access a piece of the coming shift of wealth. But to do so means that more resources need to be put into reaching this younger group.

Another interesting finding of the survey is that there are regional differences across the country when it comes to the inheritance wave. British Columbians are more likely to put their inheritance into buying a business (14.9 per cent, compared to 5.8 per cent nationally) and are less likely to use the funds to finance children’s education (7.5 per cent compared to 18.8 per cent nationally). In Quebec, fewer people are expected to inherit a family home (28.9 per cent compared to 35.8 per cent nationally), perhaps attributable to the fact that fewer people own homes in Quebec than other provinces. Fewer people in Atlantic Canada, 18.7 per cent, are expecting to receive an inheritance, compared to 25 per cent nationally, and in the Maritimes, 35.7 per cent expect to inherit a second property, compared to 18.5 per cent nationally. Six per cent of Prairie residents expect their inheritance to support them when they retire, compared to three per cent nationally. Ontario residents expect to get the bigger bequests: 6.4 per cent look to receive more than $500,000, almost half as many again as the 4.4 per cent across Canada who anticipate receiving such a large inheritance. So regional disparities should be taken into consideration when organizations are planning how to attract more donor dollars.

So for charities from British Columbia to the Maritimes, this expected $1 trillion dollar transfer of money from the older generation to the baby boomers and their children is an important one to note. And definitely one that should be on the table for discussion when looking at development and fund-raising strategies.

Some Canadian Inheritance Insights

• Canadian baby boomers are expected to inherit an estimated one trillion dollars in bequests over the next 20 years.
• Four in ten Canadians will inherit money, with some expecting to receive $500,000 or more.
• One-third of those expecting to inherit will receive between $25,000 and $100,000; fifteen per cent anticipate receiving between $100,000 and $500,000; and four per cent expect more.
• Between eight and 10 million bequests are expected as a result of the record accumulation of wealth in Canada since World War II.

 

Findings of the Gallup Survey

• Just over 14 per cent of Canadians report that they have received a financial inheritance in the past from a family or from someone else.
• 23.1 per cent of those surveyed plan to invest their inheritances, with another Gallup 5.8 per cent planning to use their bequests to buy or start a business.
• 18.8 per cent plan to use their inheritance to finance their children’s Gallup education, and 12 per cent will put the funds toward paying off debts.
• 8.9 per cent said they expected to use their inheritance for trips and only Gallup 5.9 per cent indicated they would opt for a major purchase of any kind.
• 11.1 per cent of respondents said the primary use of their inheritance Gallup would be used to support them in retirement.
• the family home is expected to make up the bulk of estates for 35.8 per cent Gallup of those surveyed, with 35.6 per cent expecting to receive insurance Gallup proceeds, 34.1 per cent stocks or bonds, and 18.5 per cent other property; about three-quarters of all respondents expect to inherit some cash or personal effects such as jewelry.