In June, I talked about a couple who amassed $14 million in their RRSPs.1.
This provoked, I expected, intense reactions.
Privileged readers who have 2 or 3 million for their retirement suddenly felt losers. Even though that wasn’t my intention at all.
As US President Theodore Roosevelt said: “Comparison is the thief of joy.”
Several people also wanted to know an element of the couple’s life: whether they had children or not.
“Does the couple have children?” asks Thierry, a reader. “It seems not. It doesn’t change the recipe, but it does complicate saving a little.”
The implication here is that having children is expensive. And that it is easier to save if you don’t have children.
On the surface, this argument seems logical. Anyone who has ever paid the bill for daycare, summer camp, or a few groceries at Costco knows this.
For the record, no, my high-income couple with RRSPs of 14 million did not have children, “by choice”.
But the most spectacular thing about all this is that he would probably be richer if he had had some.
How is this possible?
This is because several studies have shown that people who have children have more investments, and a higher net worth, than those who do not.
A few years ago, authors Andrew Hallam and Jeff Devens surveyed 1,200 teachers with international careers to find out how their finances were doing.
After adjusting the results for age, marital status and years of experience, they found that teachers with children had saved more money for retirement than teachers without children.
The authors found that married teachers aged 42 to 51 with children who had worked abroad for 16 to 25 years had an average of $450,000 in retirement savings.
However, respondents who did not have children had an average of $400,000.
“In other words, teachers of similar ages and experience had nearly 13 percent more wealth when they had children at home,” Hallam writes.
Everyone knows that having children is expensive. But not having children seems to be even more expensive!
How can we explain this phenomenon?
Ruben Antoine, portfolio manager at Tulett, Matthews & Associates, notes that in the short term, the arrival of a child reduces savings capacity.
“But I notice that on average, over the long term, people who have children accumulate more assets,” he explains.
Having children changes our vision of the present and the future.
We focus less on our wants, and more on the needs of our family. We think less about spoiling ourselves with fleeting gadgets or unnecessary luxuries, and prefer to spend on family experiences and memories that last.
Ruben Antoine, portfolio manager at Tulett, Matthews & Associates
Even among people who work in the financial industry, the phenomenon is noticeable, he says.
“We sometimes think that people who have not had children and who have had a long career must necessarily be more well-off. But, often, it is the opposite.”
Marc-André Turcot, portfolio manager at Demos Gestion de patrimoine familial (Raymond James) and lecturer at the University of Sherbrooke, notes that real estate can also play a role in the phenomenon.
“The more children a couple has, the bigger the house! It’s true that children are expensive, but it’s easy for people without children to spend large sums on travel, on leisure activities, because they don’t have children to drag around with them.”
One big caveat to this trend: A 2018 University of Alberta study found that the parental wealth phenomenon was only present when comparing people with higher net worth than the median. For people with lower net worth, having children is associated with a decrease in household wealth.
Invest before having children
It’s a great idea to start investing when you have kids. Many people do, including opening a Registered Education Savings Plan (RESP).
That said, one of the best decisions I’ve ever made in my life is that I started saving and investing years before I became a parent.
In fact, at that time I was 25 years old and I didn’t even know that I was going to become a father one day.
Today, two decades later, I realize that it’s a bit like planting a tree. I’m raising my son in the shade of that tree instead of baking in the sun.
Concretely, what does that mean?
For example, if I have a big summer camp bill to pay, I don’t let it sit on my credit card or line of credit. I sell a few units of my index funds and pay the bill. It all takes me a few seconds.
My investments have grown nicely over the past 20 years. Every dollar saved and invested in the mid-2000s is worth about $4 today, once you subtract inflation erosion.
Paying a bill with investments that have quadrupled in value feels like giving myself a raise.
The “wait until you’re old to start investing” advocates miss the point. But the more time passes, the more dollars we’ll have to invest in our lives. The more effort we’ll have to make. The more we’ll have to deprive ourselves.
The person who starts young will have to invest much less than the others. Throughout his life, he will be able to spend a greater part of his salary than the others. And he will end up richer than the others.
She will have made the market work for her.
It’s good to know that – whether you have children or not.
Question of the week: Did you start saving before you had children?
1. Read “The Couple with the $14 Million RRSPs”