Lessons learned from 50 years of working in finance
I don’t think we’ve devalued degrees.
Over the course of nearly half a century observing the economy, Peter Drake has seen it all: runaway inflation and no inflation. Mortgage rates at double digits and now at record lows. A handful of deep recessions, some Made in Canada to tame inflation and bring down high rates, others caused by external forces.
After a 35-year career at the TD Bank, Drake retired as deputy chief economist of Canada’s second biggest bank a dozen years ago. A few years later, he dived back into a second career, at Fidelity Investments, where he led research in economics and issues around planning for and living in retirement. Now 70, Drake retired again this week.
The big lesson from a lifetime of work in finance? We should have faith in the future.
“There will always be another economic or financial crisis,” says Drake, a Toronto native. “The odds are that it will get solved. What’s interesting is that at every crisis some people say it’s the end of the world. It never is. And others say it’s different this time. It never is.”
In a Q&A he offered some other parting observations:
Is it true we’re not saving enough for retirement?
Retirement is unique and that’s a crucial point. People put up their hand in seminars and say: ‘I don’t want a complicated answer. Just tell me how much I need to retire.’ My answer is I can’t tell you, because I don’t know how much you make or spend. And I don’t know what you want to do in retirement.
You have to look at what works for you, not the average person. Nobody is average. We’re all individuals. It’s going to be a function of your ability to save and invest, (and) what you want to do in retirement .
How is retirement changing?
The big factor is longer life spans. The original notion was a couple of years of leisure before you died. Now it’s a couple of decades.
On the financial side, you need the investing and planning that will finance that. But on the other side, you need to envision what you want out of retirement. This will help promote psychological satisfaction.
Some people say, ‘How do I know what I want?’ Well, you make the plan based on your interests. You may discover some things are different in retirement, but if you have a plan it’s much easier to adjust. If you haven’t thought about them you may find it difficult.
What was your retirement experience?
I left TD and worked part-time for a year and a half. Then, I was on my own for a year and a half. I didn’t enjoy that. I’d far rather work with a group of people who challenge you and people who will come up with ideas. I have thoroughly enjoyed it.
What is the most common financial mistake you see?
It is not having a grasp of the big picture: how much (people) spend and where they spend it. Getting the big picture isn’t difficult; it can easily be done with a simple spreadsheet. It does require some time and effort. The payoff is huge; knowing where you are is the only way to know where you are going.
What trends do you see affecting household finances?
I would expect a gradual rise in interest rates over the next four or five years. I don’t think it will be a whole bunch and I don’t think that means a crisis for household finances.
How will it affect things?
You would expect a modest rise in rates to cool house price increases. The same thing with personal borrowing. I don’t think it will take hold in a hurry. You’re seeing a trend toward five-year mortgages.
What about jobs?
We have an aging population. Down the road we will see much stronger job growth, higher wage increases.
How is the nature of work changing?
Millennials expect to be in a job for three years and then move on. So they could have many different jobs in a lifetime. They’ll have to manage their finances because there may be periods when they don’t have income coming in.
There are implications for retirement planning, too. Your workplace pension won’t do it for you, so you should do your own planning. Hours of work and location are changing. That used to be pretty standard. One of the things that’s driving this is technology. Now you can work wherever you are.
Is higher education worth the cost?
You need great qualifications to get a good job. There’s two parts to education. There’s learning to think and analyze and look at something critically: that should be taught through the humanities. Then there are specific technical skills.
What’s happening is people will get a degree to get the basics and then get another degree that has specific applications. That will cost you and I as parents a lot more money. But we wind up with better educated people.
Will young people be able to afford GTA real estate?
You always worry that the kids’ standard of living won’t be as good as yours. But I’m not sure that’s going to be the case. It’s going to be different, but I don’t think it’s worse.
I watched the first (planned) development of the suburbs, Don Mills. That was the gold standard of the time. For young people the gold standard is different. It’s being in the metropolis and having access to all the things that the city has to offer. It means they will have less living space and some might see that as a lower standard of living. But in other ways, their standard of living is higher. They have technology which defines their social lives and friendship groups. They have access to urban attractions that are difficult to get to in the suburbs.
Is this really it for you?
You learn never to say never, but my short-term goals are to spend as much time on my bike and canoe as possible over the summer. I have always been involved in music and I’ve been toying with learning another language. That’s a great stimulus.
Any final thoughts on personal finances?
It boils down to paying attention to your own situation. There are all sorts of general rules and products and marketing campaigns that suggest we do this or that. You have to look at yourself and say, how do I make it work for me?