Joe Oliver’s lessons in money man­age­ment

Toronto Star - - BUSINESS - Adam May­ers Per­sonal Fi­nance

“More knowl­edge is a good thing, if only to be sen­si­ble about what to ask and who to ask for ad­vice.” JOE OLIVER FED­ERAL FI­NANCE MIN­IS­TER

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 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 Street 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-yearold 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 life­long 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 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 life­long 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. 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 realestate 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.” Adam May­ers writes about in­vest­ing and per­sonal fi­nance on Tues­days and Thurs­days. Reach him at amay­ers@thes­tar.ca.

CAR­LOS OSO­RIO/TORONTO STAR FILE PHOTO

Fed­eral Fi­nance Min­is­ter Joe Oliver be­lieves liv­ing within his means has helped min­i­mize his fi­nan­cial risk.

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