Why do we need money? Why do we save and invest it? Why do we even bother going to work every day?
Everyone is going to have different answers to these questions. Maybe you have never really even thought about it.
Obviously we all need money to live day-to-day, it is the way the modern world functions. Most of us also have long-term goals in life, and these almost always require money. Some common goals include:
- Retirement
- Education
- Housing
- Healthcare needs
- Being generous and supporting others
- Financial security and independence
Throughout most of human history, people didn’t really have the need (or luxury) to save and invest. Retirement is relatively new concept that evolved in the 20th century. Up until around 1850 AD most people did not live to see their 40th birthday1. Those that did were lucky to make 50 or 60, so people effectively just worked until they died.
In Canada and most developed countries, life expectancy reached 65 only in the 1940s. It is now over 80, and expected to continue rising in the coming decades. As life expectancy rose, this put pressure on countries to develop programs to support our elderly population after they leave the workforce. Canada’s first (very limited) public pension plan was introduced in 1927, and expanded and updated over the years into what we have today. The Old Age Security (OAS) pension was established in 1952, and the Canada Pension Plan (CPP) in 19662.
As any retiree will tell you, not many people can live on CPP and OAS alone. This is especially true if you do not own your own home, which will be the reality for more Canadian retirees in the coming decades assuming home prices continue to grow faster than income. Private retirement saving and investing are therefore becoming much more important, both for individuals and for the public support systems which are getting stretched by an aging population. Governments recognize this need, and have developed numerous tax incentives and programs for private saving and investment.
The average Canadian retiring today should expect to live for at least another 20 years, and many will live longer than that. With inflation driving up the cost of living every year, your retirement years could be some of the most expensive in your life.
The earlier you start planning and saving, the more likely you will have a responsible, sustainable financial future without being a burden on others. Let the power of compounding assist you, and save smarter – not harder!
References