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Front Burner Transcript for December 30, 2024

Host: Jayme Poisson

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JAYME POISSON: Hey everybody, it's Jayme. In the next two years alone, Canadian millennials stand to inherit nearly one trillion dollars from their boomer parents. Let me remind you that this is a generation that has spent a lot of time being resentful of boomers, who grew up in more of an economic golden era and are now sitting on homes worth many, many times more than what they paid for them. But what's going to happen when all this good fortune changes hands? Back in September, I talked to freelance reporter Katrina Onstad about this. She wrote a cover story for Maclean's about this upcoming millennial windfall called 'The Jackpot Generation.' Have a listen.

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SOUNDCLIP

JP: Katrina, thank you so much for coming onto Front Burner. It's great to have you.

KATRINA ONSTAD: Great to be here.

JP: So there's a lot to talk about here today, but I feel like we should start by laying out how we got to this point. So let's go back to the mid-20th century when the baby boomer generation was born. And what kind of economy were they born into?

KATRINA ONSTAD: Yeah. Well, those were some lucky ducks. They were born [laughter] to an extremely prosperous post-war economy. They benefited from, you know, Canada's boom in the job market. They were also the beneficiaries of really strongly funded public institutions like education and health care. And, of course, the luckiest thing of all was housing, which, you know, was not expensive at that time. And while they did actually hit some higher interest rates over the years between then and now, mostly they were very able to buy into the housing market.

JP: Yeah. You hear millennials complain about this a lot, right? That our-- I am a millennial, so our parents are telling us to stop buying avocado toast, to work as hard as they did. [Katrina chuckles] But, you know, they also showed up to the auto factory and got a decent paying job and bought a house for, like, five cents. So, it's a thing.

KATRINA ONSTAD: Yeah. And they also had, you know, defined pensions out of those jobs. And um, yeah, you're right. Like manufacturing sector, you could have a pretty decent life, uh, with a blue-collar job too. And those, you know, obviously that situation has changed dramatically for their children.

JP: You mentioned access to like a robust social safety net. Just elaborate on that for me a little bit more. You know, access to things like a good public education and health care. How is it different, if at all, to today?

KATRINA ONSTAD: One of the biggest differentiators for millennials is student debt, right? Like, the cost of tuition has just skyrocketed in their lifetime. So, they're being hit kind of by this trifecta of lower wages... lower wages, more expensive housing and student debt. And that's usually where they're at when they're starting. That's-- For many of them, that's how they start adulthood. For their parents, tuition, the idea of publicly funded institutions like post-secondary education, was much cheaper, more accessible, less competitive. Even to get in to universities and those kinds of programs. So, yeah, it was just a, it was a different world.

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JP: You reported that Canadian millennials stand to inherit a trillion dollars in the next two years alone. I mean, that sounds like a lot of money. But just give me a sense of how we think that could be distributed. Right? Like, how many families are we talking about here, and what's the average that they will stand to inherit in coming years?

KATRINA ONSTAD: Yeah. So, I mean, it's been called the largest intergenerational wealth transfer in Canada's history -- quite a phrase. According to an Ipsos survey, among Canadian boomers who are planning to leave 100% of their estates to their children, the average inheritance will be about $940,000. But this is not everyone, right? These are people who have inheritance to give. And so, who are those people? Well, that's determined generally by whether or not you're attached to housing wealth, right? [JP: Mm-hmm.] One estimate I heard said that, like, about three-quarters of Canadians are going to have a familial connection to a boomer, and a big chunk of those boomers are going to have housing wealth. But for the quarter who don't have that attachment, or for those who are attached to a Boomer who didn't buy into the market during that incredibly opportune moment, this transfer could pass them by.

JP: And just elaborate for me a little bit more on, you know, how that might affect the economy at large.

KATRINA ONSTAD: The people that I talked to, the economists that I talked to, are most concerned about the ways in which this wealth transfer might entrench a trend that we're already seeing, which is wealth inequality. Right? That's already a huge issue in this country. Income inequality has increased over the last 20 years in Canada. And in the past two years, I guess because of inflation, because of higher interest rates post-COVID, you know, have shrunk the wealth of the poorest 40% of the population, while the richest 20% are kind of continuing to get farther ahead, right. So, the-- we're now in a situation where the top 1% in Canada controls a quarter of the country's wealth. So, if this money is funnelling from the wealthy to the children of the wealthy, it's kind of a, like, 19th century vibe, isn't it. Right? Like, it sort of speaks...

JP: Big time.

KATRINA ONSTAD: Yeah. It speaks to a shift from an earnings-based economy to an inheritance-based economy, right. Your station in life isn't so much earned but inherited. Like, it's passed... you know, your, your status is passed down to you. Which is kind of the exact opposite of what we think of when we think of New World achievement, right. Which is supposed to be, um, you know, brokering your own success. It also keeps wealth really concentrated within families. And when wealth is concentrated in that way, it doesn't make for a ton of, like, opportunity or a very fluid economy.

JP: Yeah, I think we definitely want to point out here that this wealth transfer, it's already been happening to a decent extent, right. Before parents die. You know, the joke that you hear people make about the 'bank of mom and dad' helping a lot of their kids with down payments on homes, like, that, that is a very real thing. It's like, this is-- this has been playing out for years.

KATRINA ONSTAD: Yeah. One of the financial advisors I spoke to for this piece used the phrase 'giving with a warm hand instead of a cold one.' Which I found, like, very, very creepy. A kind of a weird phrase. But it's true. Like, giving while living. This is increasingly a norm because of the lack of affordability, and particularly because, you know, Canada has one of the most expensive housing markets in the world. So, yeah, now we're seeing, like, a third of first-time Canadian home buyers cover their down payment with money from either parents or relatives. That's unprecedented. And the national average for that, for that kind of help, is $115,000. Actually, something I really learned doing this piece is that inheritance is sort of... it's broader than just, like, a cheque upon the death of the parent, you know? And it's happening all around us, right. That, like, these baby boomer parents -- who, by virtue of being born at the right time have accrued all this wealth -- are, are helping their kids with their family vacations, paying for tuition, or even, like, free labour in the form of babysitting so it takes daycare off of the, off of the family bill. I think it's-- I found that really interesting here, the potential for how this might change family dynamics, right? These new kind of financial arrangement can kind of keep children enmeshed with their parents much longer. Financial independence... we associate financial independence with becoming an adult. But that parent-child bond is getting severed much, much later now because of this economy.

JP: Talk to me more about that. That's really interesting.

KATRINA ONSTAD: So, one, here's an example. One family that we talked to for this piece said, you know, we will buy-- the parents said to the kid, we will buy you a house upon graduation, but it has to be in the same neighbourhood where we are. [laughs] Right? Like, I thought that was a very kind of fascinating, like-- [crosstalk]

JP: Yeah. Comes with strings.

KATRINA ONSTAD: --little, little power move. [JP: Yeah.] Yeah. So, that's, you know, what does that do to an adult? How is that going to change who we are? And then, here's a kind of more positive outcome of this: there's more co-ownership happening. There's more intergenerational co-habitating. And I talked to another family in Vancouver that had actually come up with a really creative way to divide up the property, so that a sister, a family, the parents, a step-parent, like, all live together in a kind of urban compound. And it really, really worked for them emotionally, too. Like, these kids were kind of being raised by a village. And that's a kind of, you know, feels old-school, but is, is now new-school out of need, and maybe is creating actually a different kind of a more, a closer emotional attachment or a sense of community. So, maybe there's an upside to this, too.

JP: Mm-hmm. There's something that you talk about in your piece called 'status fog.' And just, you know, tell me a little bit more about what you mean by that.

KATRINA ONSTAD: Yeah. So, in terms of this giving while living, I think one of the effects that a lot of people have noticed, but maybe we haven't quite named yet, I called it 'status fog.' It's this feeling that you never really know anyone's financial standing. Like, we will watch our friends and neighbours live in houses that seem out of whack with the salaries that would be adjacent to their jobs, or taking vacations that kind of don't make sense. And like, it's sort of disorienting. I find this in my neighbourhood, you know, where I see people who have these really creative class jobs. Like, the example in my story was a, you know, a potter renovating a solarium. Like, this feels very, very misaligned and--

JP: Right. And you live in downtown Toronto. So, I mean, we're-- these are, like, $2-million houses.

KATRINA ONSTAD: They're very expensive houses, that 25 years ago were, you know, being gentrified by the likes of people like us. Like, [chuckles] [indistinct] people who didn't have a ton of money because they were cheap. But now they're very expensive, and yet we're still seeing a lot of these people in there. And it was actually kind of comforting to have this revelation that, oh, a lot of these people are being backed by their parents. It's not... you know, it kind of upends our idea of what success is, right, which is independence and being self-made. But it is confusing. And I think maybe the danger of this is that we-- these optics misrepresent what it takes to succeed in our society, right. Like, I would hate for politicians to think, well, look, it is still possible for a potter to buy a $2-million house. Like, it is not. And so what levers don't get pulled when we're all kind of pretending that we're self-sufficient, but in fact, we're super enmeshed with our parents and they're cutting the cheques.

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JP: Tell me more about what the millennials and the parents that you talked to for this piece when you were putting it out, told you about how, how they're feeling about all of this.

KATRINA ONSTAD: Yeah. I mean, so, this, this whole idea of inheritance is really fraught. It's very emotional to talk about the death of your parents leading to a great financial gain. There is a gain braided to a loss, right? A lot of people are not talking about this, about how, how this is actually going to play out, which is maybe another form of status fog. Like, the-- you know, financial planners are very panicked by how few conversations they're hearing about what inheritance is actually going to look like. So I talked to one guy -- I will call him Chris. And he had done really well. Like, he was a real... he had really benefitted from familial help all along the way. He was extremely aware of this, of his privilege. That his grandparents had paid for university; his parents had helped with the down payment on a condo just before things went totally nuts. And so he, you know, owns a condo and he's, he's doing well. He has, like, a-- he's one of the wealthier millennials. And there are very wealthy millennials within that cohort, to be clear. But he has a lot of guilt, A, about the fact that he didn't do it on his own, right. That he, that the foundation-- And he's also thrifty and really good at his job and works hard. So he's, you know, he is checking all those boxes. But still, there's something about it that sits, that he's ill at ease with that he had this help. And because of it, he doesn't even want to think about or talk about what's coming down the road for him and his brother, which is actually quite a sizable inheritance. And he said, you know, if I, if I talk about that, it's like I'm killing my parents, [chuckles] essentially. So, it is-- it's, it's very emotional, and I think financial planners are kind of up against it getting people to have these conversations and talk about it out loud.

JP: And why is it that they want people to talk about it out loud?

KATRINA ONSTAD: Well, I think because so much can go wrong, right? When someone gets an inheritance, it's usually an emotionally difficult time anyway. Um, it can be braided to a sense of obligation to one's parents. So, another analyst I talked to said, you know, people are very worried about squandering this money. They don't know how to spend it. Some people won't spend it and they kind of hoard it. Other people will blow through it because they feel more comfortable not having money. I talked to one person who said having a lot of money didn't align with their values and they wanted to get rid of it. And there's actually a financial guru named James Grubman who came up with this idea of, of money as being like a new country. And if you inherit it, you're kind of an immigrant to a country where you had never been before. And you might try and get rid of it to go back to the place that you're comfortable and that you know and that you're familiar with. So, [JP: Huh.] you know, it's...

JP: Although, I'm sure there are people listening to that right now who are absolutely rolling their eyes.

KATRINA ONSTAD: Yeah, for sure. For sure. And that, I think, probably is most people. But, you know, it is interesting. Like, people don't... I think we don't talk about sex, we don't talk about death, we don't talk about money. We have two out of three in what's coming with this [laughs] inheritance. So, probably behooves us to start talking about it.

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JP: So, I want to come back to something that you said earlier. This idea that these injections of money are kind of creating this facade, this idea that everybody is doing okay. Right? When in reality this is a one-time injection. Also, there are a lot of people who are not going to benefit from it at all. So, experts that you're talking to, what are they saying about all of this?

KATRINA ONSTAD: Yeah. Well, it's kind of interesting, because the way it was described to me was there's a perfect storm coming, right. So, as the boomers age and die, their wealth might pass down to their individual heirs. But it's going to happen at exactly the same moment that Canada stands to become poorer because we have to take care of those baby boomers. There's so many of them. There's nine million of them. And their needs, their retirement, their health-care needs... the federal spending that's going to be necessary to help the boomers get through this next chapter, stands to really damage Canada. They're, they're going to cost us a lot. And the problem, as it was explained to me, is demographics again, right. Like, in the '70s, governments could pay for medical care for older people because there were so many boomers -- there were seven boomers to pay for every retiree. But today, there's only three workers to pay for every retiree. So we are gonna kind of run out of money, right? And we know about the deficit and everything. Someone said to me, Canada's economy is a pyramid scheme with young people at the bottom, and something has to change.

JP: This idea that, you know, there are going to be many millennials that receive this windfall, but also many who don't, um, and the fact that it's going to create this widening inequality gulf, what are people saying about the impact that that could have? And, you know, are there any proposals out there to do anything about that?

KATRINA ONSTAD: Yeah. Well, one shift that is anticipated by some is, you know, no more of this intergenerational squabbling, uh, but now it's going to be intRAgenerational squabbling. Right? Like, if people feel that their neighbour has gotten ahead just because their parents died -- because they may have, you know, reaped the benefits of an inheritance -- it feels like the system isn't really working, right. Like, it just, it doesn't, it doesn't... it feels like it's rigged. 'This guy over here gets a house because his parents had a house? How is that fair?' And I think that sense of a rigged system is never good for the national psyche, right. It foments dissent, division, populism, civil unrest. I think what we're going to see is an entrenching of the have/have-not situation that we're, that we're already in.

JP: Mm-hmm. And I guess there's nothing that can be done about that, or...?

KATRINA ONSTAD: I mean, what can be done about it sort of leads us to this very unsexy space of redistribution and taxation, right. Like, what are the kind of policy and regulatory positions that we can start taking now to protect us from, from this thing that's already happening, and get ahead of it? Like, how should we be considering ways in which to unlock some of that wealth? Canada is the only G7 country without an inheritance tax, and we do have, like, some sort of smaller provincial levers that get pulled. But, I mean, that's, that's pretty interesting, right? Like, the U.K. has a fairly aggressive inheritance tax -- it's actually about to get more aggressive -- but it generates billions for the U.K. We don't do that. That's money that we are not, are not unleashing. You know, there is also more radical proposals of, like, inheritance for all, where every citizen will receive an inheritance -- kind of a posthumous universal basic income idea. But yeah, I think-- you know, you said this earlier too, like, is it time to examine the personal residence exemption, the PRE? The idea that we do not tax the first home that people sell. Can we diffuse some of this concentration of wealth? You know, I will say that there were some efforts in this direction in the last budget. And, you know, people were very grumpy about it, the new capital gains inclusion rate. But, you know, that potentially could generate, like, almost $20 billion for Canada, and yet, you know, getting between people and their housing wealth, does feel like political suicide, doesn't it?

JP: Oof. [Katrina chuckles] It, it does. I can't imagine a politician trying to take that on right now and what would happen. [indistinct] super interesting conversation. Katrina, thank you very much for this.

KATRINA ONSTAD: You're welcome.

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JP: All right, that is all for today. I'm Jayme Poisson. Thank you so much for listening. Talk to you soon.

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Encore: Canada's millennial 'Jackpot Generation' - Transcript

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