I was speaking to a recent graduate who expressed a less than positive view about the concept of profit. This stuck me oddly since I am living on a public employees’ pension plan and Canada Pension Plan. These are profit-based plans, so corporate profit contributes significantly to my retirement income.
At the same time, I object to how the phrase “private for profit” has come to be viewed as a pejorative. This threatens profit’s power to accomplish great social good. I am also concerned how the debate on “profit” distracts from conversations on serious social issues: such as end-of-life care. These discussions should focus on greed, indifference, incompetence, fiduciary responsibility. However, when the care home discussion turns to a discussion about profit, these topics get glazed over.
Therefore, I feel that the public education system should have teaching on how profit works. I propose that a good place to start is to have every high school student study the relationship between profit and pension plans. These are the profit-based pensions which their parents probably contribute to, and that their grandparents likely draw from. (Anyone who has ever contributed to, or drawn from, The Canada Pension Plan (CPP) is part of this group)
I was surprised by my own lack of knowledge, so I contacted Juana Baldwin at Assante Wealth Management to enhance my education.
The professional teacher is often the first career person that we encounter – so it seemed useful to look at a teacher’s pension plan. (I studied the Ontario Teachers’ Pension Plan as example, but similar plans also apply to teachers in Manitoba, Saskatchewan, Alberta, and British Columbia.)
How teachers pension works:
- An amount is deducted from every paycheque of every participating teacher.
- This money is not retained by the school board but is forwarded to the appropriate pension plan.
- The pension plan then invests in the bond (loan) and equity (stock) markets. These investment plans are regulated and permitted reasonable risks to pursue higher returns.
- The markets respond to the market forces of profit, loss, fear, and greed.
- These funds grow, and each participant’s share of the fund grows accordingly.
- At retirement, income is triggered from the participants share.
Institutional investors make up the single largest pool of funds invested. These plans participate fully with private personal investors. However, investment plans are heavily government regulated to permit acceptable risk in return for a higher potential return. The idea is to keep the risk spread across many corporate entities. These corporations are administered by Executive Teams who have a strong motivation for profit. These profits are then returned to the individual pension plans and ultimately distributed to the retired teachers.
Here is an example of how profit feeds pension: “If you invest $100/month for 30 years you will have contributed $36,000. If this money went into a government regulated pension fund, that has equities in the portfolio, then you can expect a conservative return of 5% over the 30 years. In that case your $36,000 contribution will have grown to $83,573. The profitability of the companies held by your pension fund are a major factor contributing to more than doubling the money available to be paid out in pension.”
Of course, profit, in the hands of a person of nefarious motivation, can be misused, just like fire can be misused by a pyromaniac. We must not draw the conclusion that the phrase “People Before Profit”, makes any more sense then “Homes Before Heat.” Just as home heating is regulated by strict file codes, companies must be regulated by strict laws. This is a topic for another time.
In conclusion, for greater social good, public education must comprehensively teach how profit works. As a society, our happiness is heavily influenced by economics. We must teach and defend the concept of profit.