As Canada’s finance minister, Joe Oliver has his hands full. Our economy is fragile and so is our mood. We escaped the worst of the 2008 global financial collapse, but now events outside our borders are rattling our confidence.
In a year and a half in office, the Toronto MP for Eglinton-Lawrence has made a lot of changes that affect our personal finances. He has doubled the tax-free savings account (TFSA) limit to $10,000 a year, enriched child benefit tax breaks, introduced income splitting for single-income families and relaxed the rules that govern registered retirement income funds (RRIFs).
Oliver is a native of Montreal where he earned an arts and civil law degree at McGill University. He later added an MBA from Harvard University and before entering federal politics in 2011 had a long career on Bay St. in investment banking.
It’s too late to give advice to his two adult sons in their 40s, and two stepsons in their 20s and 30s, about how to manage their financial affairs. But Oliver, 75,has an 8-year-old grandson and it’s never too early to get going. I sat down with Oliver recently and asked for his perspective on family finances.
His main message is that life-long learning is important, especially about money matters. Every financial decision, whether it’s buying a house or investing in stocks, has a risk. And as the complexity of decisions increases, broadening your financial education helps you to better understand those risks.
“Be responsible, be strategic and understand that risks are inevitable,” Oliver said.
And be sure you take advantage of the tax breaks Ottawa offers for Tax-Free Savings Accounts (TFSAs), Registered Retirement Savings Plans (RRSPs) and Registered Education Savings Plans (RESPs).
Here’s what else he said:
1. Live below your means: “My father was a dentist and my mother was a teacher. They didn’t have expertise in the markets, but they spent less than they made. That’s how they lived. My dad served in the army and bought his first car when he was 40. He lived a modest life and taught by example. So I never put myself in a position of financial risk.”
2. Keep learning: “Get the best investor education you can. It should be a life-long activity. It doesn’t mean you need to be an expert, but more knowledge is a good thing if only to be sensible about what to ask and who to ask for advice.”
3. Everything involves risk: “You have to take a sensible view of risk and reward, not put everything into real estate or the stock market. Not betting the farm on decisions . . . You have to decide how much is appropriate for you. It sounds vague, but it’s relevant to a period of rapid change and less security.”
4. Be flexible in your outlook: “There are risks that flow from enormous change, so think strategically in terms of your career and how to save and invest. Look at the alternatives (critically).
“My generation got a job and expected to stay in it for life. That’s not a typical career path now. It’s harder for kids to find work and employment isn’t necessarily permanent . . . What does that mean for education? Humanities teach you how to think. I got an arts degree and it stood me in good stead. It’s enriching and enabled me to see things in a broad way. Later I got an MBA, the trade.”
5. Start saving early: “Eleven million Canadians contribute to a TFSA. It’s marvelously flexible, which is why so many people use it. It’s a great way to save for a down payment for a house, for the kids education, or for retirement.
“RRSPs are designed for retirement and while retirement savings is not what young people think about, it does provide a real advantage. The power of compounding is pretty powerful even at low interest rates.”
Someone in their 20s or 30s “may be thinking about getting married and their first big financial decision would be a house. So they would want to save for a down payment. That would favour a TFSA. If there was more money available, the RRSP. If you can afford it, do both.”
6. Learn from your mistakes: “One needs to take chances, but not be reckless . . . I bought my first home in 1973 while I was paying off my student debt. I was married and we’d had our first child. I didn’t have any cash.
“The Toronto real estate market was taking off. We’d looked at a house that was $55,000 and six months later was $65,000. I was bent on buying it, but didn’t have any money. I went to the main Royal Bank branch downtown to get a loan and the manager was Allan Taylor, who later became chairman of the bank.
“He said: ‘What do you want it for?’ I told him. He said: ‘How much do you want to pay?’ I said: ‘$65,000.’ He said: ‘How much do you want to borrow?’ I said: ‘$65,000.’
I took out a floating-rate loan because I did not have the money for a down payment and bought the house. Within six months rates, started skyrocketing and my monthly payment rose with it. So, I turned the loan into a mortgage.
“So, it wasn’t a good financial decision, though it was a superb real estate decision.
“I’m not suggesting that people borrow the full amount of their homes, but it was precisely the right thing to do for me. Real estate prices were rising and I was two years into a career where I was fortunate to see my income rise. So it became affordable. It comes back to risk. I took a chance and it was right. What’s critical is that it was affordable for me. It may have been uncomfortable, but it was affordable.”