The average inheritance in Canada today is just under $100,000, according to a new survey from BMO, and some two-thirds of Canadians anticipate they will get one.
That’s good news for baby boomers, many of whom are entering their senior years with far too little saved up for retirement, and far too much debt still outstanding. An inheritance from the parents could go a long way to fixing that.
But it may be bad news in the long term, as some economists are now arguing that inheritance is becoming a more important part of people’s wealth, and that in turn makes one's bloodline a larger factor in determining success.
The BMO study found that while the average inheritance is slightly more than $96,000, there are large discrepancies between regions. (Is there anything in Canada’s economy that doesn’t follow this rule?)
The average inheritance in British Columbia was more than $120,000, nearly four times as much as the average inheritance in Atlantic Canada, $32,000.
BMO’s report didn’t address the reasons for this, but a spokesperson suggested in an email that Ontario, Quebec and B.C. have considerably higher inheritances because essentially that's where the rich people live -- Toronto, Montreal and Vancouver.
Inheritance More Important Than It Used To Be
If economists like the recently celebrated Thomas Piketty are to be believed, inheritance is a more important factor in determining people’s wealth today than it has been in generations.
In his book Capital in the Twenty-First Century (which apparently everyone bought but nobody read), Piketty argues that inheritance becomes much more important when the economy slows down.
In the post-Second World War period, when the economy was growing rapidly, inheritance didn’t matter much, Piketty writes. That’s because incomes were growing so fast that one generation’s wealth didn’t amount to very much a generation or two later.
But in our slower-growing economy, younger people aren’t outstripping their parents’ wealth like they used to. That means inherited wealth is playing a larger role in determining how well off people are in our society, Piketty argues.
Case in point: A 2006 study carried out by Decima Research estimated that Canadian baby boomers will inherit $1 trillion worth of assets over the next generation, the single largest intergenerational transfer of wealth in history.
While that's good news for indebted boomers, it's bad long-term news for our economy, as people become more dependent on their parents' wealth and less on merit for their success.
Piketty has been arguing that this problem, along with some other inequality-related issues, could be addressed with a global progressive wealth tax that would tax capital (buildings, land, investments) rather than income or earnings from capital, as is now the case. A tax on capital would in effect tax mostly the wealthy.
But it would hit those who inherit property, as well. And given that trillion dollars Canadians stand to inherit, instituting a wealth tax would prove controversial, to say the least.
So it seems that our new era of inheritance is likely here to stay, hopefully at least long enough for the boomers to pay off their debts.
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