If we are ever to get our country and ourselves straightened out financially, educating teenagers about the basics of handling their lives and money is a large part of it. Once they achieve a sense of responsibility in themselves, they will begin to expect it from politicians of all parties at all times.
The following advice from Canada’s Minister of Finance, Jim Flaherty, goes a long way towards this; these four tips that he is passing on to his three sons are a great way to start, and well-worthy of being passed on.
Four tips Jim Flaherty is giving his three sons
James Daw: Oct. 4th, 2010
Jim Flaherty Canada’s minister of finance has introduced major innovations to the nation’s tax and savings system during his four years in Ottawa. The Oshawa-Whitby MP has ushered in tax-free savings accounts, registered disability savings plans, pension income splitting and the working income tax benefit, nicknamed WITB.
Meanwhile, the federal member for Oshawa-Whitby and his wife Christine Elliott, the provincial member, have been preparing their 19-year-old triplets for a life on their own. Galen, a McGill University varsity football player, spent the summer at broker GMP Securities LP in Toronto. Brother Quinn, a varsity soccer player the University of Western Ontario, worked in the research department at Macquarrie Capital Markets Canada also in downtown Toronto. (The federal Ethics Commissioner cleared both jobs.) Their brother John attends Anderson Collegiate and Vocational Institute in Whitby.
I pulled Flaherty aside during a garden party at his historic stone farmhouse and asked him what advice he’s giving his boys. Here’s what he said:
1. Education is vital
That’s the first and most important thing. Once you have a good education, the world is your oyster; really. You can live anywhere in the world and move from job to job. You can retrain and be trained.
Half of the jobs that people will work at in the next 10 or 20 years don’t exist now. So the idea of having some focused, narrow education, to go do this particular job for the rest of your life is unlikely.
Once you are well educated, and you are not afraid to work – because work is important, not just to make money, but to have character and to feel good about yourself – then save. Employing one’s skills and aptitudes creates a sense of purpose and accomplishment. Being useful is good for the soul as well as the pocketbook.
2. Spend less than you earn
I am a big Warren Buffett fan, and understand the miracle of compound interest. I think my sons are starting to as well, making money at summer jobs and so on. They are starting to see they can invest and earn interest and have that interest multiply.
These are the fundamentals and it will help later when they save for retirement. I try to encourage them to use tax-free savings accounts (TFSAs), because a dollar saved now is worth such a multiple over a lifetime.
TFSAs or registered retirement savings plans? Tax free accounts are more flexible. Then once you do that you go RRSP. But it is virtually an open field with TFSAs. In 20 years, most capital gains should be immune from tax if people use them properly. And governments will do nothing but raise the (annual contribution) limit over time. No government will abolish tax-free savings accounts now we have created them. They wouldn’t have the nerve.
3. Buy property
Real estate is a good long-term investment. But pay off your mortgage as soon as you can. Investing in the purchase of a principal residence early on is a tax-free way to accumulate capital. Then move on to another principal residence. Renting doesn’t produce capital gains.
The (boys) have grown up on a large piece of land in a fairly large house. I expect their experience (as adults) will be smaller and greener, probably more urban and transit focused. (Galen and Quinn were up early this summer to catch the GO train to get to summer jobs at Bay Street investment houses by 7 a.m.)
4. Be frugal
(There are) risks with debt, especially credit cards. We have given (the boys) credit cards in the hopes they will learn to manage them, because so many people get into so much trouble with credit card debt. The tendency some young people have is to over-extend themselves on credit to buy fancy houses and cars which they can’t really afford if, for example, interest rates rise. So, it’s important to avoid over-extending on credit, especially on depreciating assets such as cars.
I would also really discourage them from buying expensive homes and cars.
We will see what they actually do when they get out of university, whether they buy expensive cars. (Flaherty senior drives a Chevy) I consider that such a waste; money you could use doing other things.
See original here.