Even people with no knowledge of demographics have heard of the group born between 1946 and 1964. These are the baby boomers. Canada produced more than 400,000 new Canadians in each year of the baby boom, peaking in 1959.
Baby Boomers Strong Influence
Baby boomers weren’t much different from previous generations, there were just so many of them, and this huge population bubble created unprecedented demand for consumer products and services.
This post will attempt to show how the banking industry changed during the boomer years to reflect the increasing demand for services that reflected the boomer lifestyle.
In 1954 the National Housing Act allowed chartered banks to enter the mortgage-lending field. CMHC introduced mortgage loan insurance, making home ownership more accessible.
Canadian families were averaging four children each and in the 1960’s houses were becoming bigger, incorporating the basement as living space.
A Royal Bank brochure on mortgages from this era proclaimed the average house was valued at $8,000. With an $800 down payment, monthly payments were $48.88.
Adulthood and – Credit
The late 1960’s brought the introduction of charge cards. No other financial product changed Canadian spending habits so drastically, putting $300 of instant credit into consumer hands.
The often-heard slogan was “Will that be cash or Chargex?” CIBC, Royal Bank, Scotiabank and TD all offered Chargex (now VISA) while Bank of Montreal was the sole bank offering MasterCharge (MasterCard)
Unfortunately, during the boomers’ greatest spending years – raising a family, buying a house (mortgage), or car (loan), and dozens of other expenditures – inflation was at its highest, peaking at 21% in 1981.
Sure, interest rates on simple savings accounts were 5-6% and 5-year GIC rates pushed upwards of 20% but 5-year mortgage terms soared to 24%.
Wage and price controls were implemented to control the rise in inflation but the damage was done. Sadly, many people were downsized from their jobs and families lost their homes to foreclosure when they couldn’t afford their mortgage payments after renewal.
It was difficult to sell your house in a poor housing market which saw prices plummet to the degree that the outstanding mortgage was greater than the house value. CMHC came through and covered all the insured deficits. Otherwise, bank bankruptcy could have been a real possibility.
The “four pillars” of Canadian finance – Banking, Trusts, Insurance and Investments – were deregulated in 1986. Formerly, these were all separate entities. Banks added trusts, securities and brokerages (both discount and full service) to their line up, mostly by purchasing existing companies but sometimes by developing their own departments.
Boomers were now in their peak earning years and, with mortgages paid off (or well on their way) and children leaving the nest, savings became more of a priority.
Interest rates had declined but the stock market was booming. With the introduction of mutual funds sold at the bank retail level, it was easy to participate. Investment returns had been extremely attractive and markets had performed steadily.
A lot of former GIC investors jumped into the stock market via mutual funds without a glance at their risk tolerance (we called them GIC refugees).
Crash and Burn
At the beginning of the 90’s when the market corrected, the formerly optimistic investors fled for their lives losing the money they never would have lost if they had held tight to a long-term strategy.
Undaunted, banks came up with the Market-Growth GIC promising the security of a GIC (no loss of principal) with the potential growth of the stock market. Investors were promised that, after a correction, the possibility of another rise was a given, especially within the 3- and 5-year terms.
The subsequent upturn in the market gave out huge returns so now these products have toned down significantly, with fixed upper limits where formerly there were none.
The Search for Income Sources
Early retiring boomers now were requiring some cash from their investments. Interest on fixed income products like GIC’s and Bonds were at all time lows. Monthly Income Fund mutual funds were introduced with increased returns to fulfill that need.
Where to Now?
In Canada, baby boomers make up approximately one-third of our population and just under 50% of tax filers. The first baby boomers are eligible to receive Old Age Security this year. There will be greater pressure on both public and private pension programs.
I have no doubt that the banking industry will continue to implement programs and services that will fulfill the growing needs of this large demographic in the decades to come.