Sheryl Smolkin went to law school with the late Jim Flaherty. She reflects on how his actions as finance minister can be applied on a personal level.
Adrian Wyld / THE CANADIAN PRESS file photo
Jim Flaherty, still the finance minister, in the Commons last fall. He died unexpectedly on April 10, only 24 days after retiring from politics.
Jim Flaherty’s picture has hung above my desk for as long as I can remember. That’s because we were both law students in Osgoode Hall Law School’s class of 1973 and his headshot is third row centre in the class composite.
There were over 240 graduates in our year. Many have had stellar careers as lawyers, judges and politicians. But given a class that size it is not surprising that many of us did not know Flaherty well when we were students. However, by the date of his untimely death earlier this month after almost 20 years in public service at both the provincial and federal level, he was instantly recognizable to almost every Canadian.
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As individuals struggling to live within our means, there are some personal finance lessons we can learn from steps he took to balance the country’s books.
You can’t have it all: His eight years as finance minister included funding cuts to many groups and social programs. Whether you agree with the cuts made, the message is clear. We must all prioritize our needs to live within our means.
Pay down debt: Flaherty repeatedly said that until we pay down the national debt the government’s ability to fund new programs is limited. Individuals carrying consumer debt have the same constraints. Hefty interest payments on credit card debt will limit your cash flow and reduce your ability to afford even the basic necessities.
Good debt, bad debt: Flaherty understood there is good debt and bad debt. Thus he spent generously to help Canada survive a global recession. In the consumer context, borrowing a modest amount to pay for your education or add a revenue-producing basement apartment may be a good investment. Financing new furniture at high interest rates over several years is not.
Pay off your mortgage: On Flaherty’s watch, the allowable amortization periods for government-insured mortgages was cut three times in four years from a maximum 40 years in 2008 to 25 years in 2012. He believed it was prudent to discourage house buyers from taking on supersized mortgages they couldn’t afford to repay in a reasonable period of time, particularly if interest rates went up or the housing market crashed.
RRSPs have company: The tax-free savings account (TFSA) announced in the 2008 federal budget has been embraced by Canadians at all income levels. Contributions accumulate tax-free and if you take money out of a TFSA, your contribution room is restored in the following year. Because withdrawals do not increase your income, they do not trigger clawbacks of government retirement benefits like Old Age Security.
Helping the disabled: Taking care of disabled children who cannot realize their full potential has long been a challenge for family members. Flaherty was the father of a disabled son and created the registered disability savings plans (RDSP) program, eligible for the Canada disability savings bond and the Canada disability savings grant. The RDSP accumulates tax-free, and government disability pensions are not reduced when withdrawals are made for the plan beneficiary.
In 2013 our class had its 40th reunion and the crowd was smaller than five years ago. When we meet again in 2018, another chair will be empty. But there will surely be a spirited discussion of Flaherty’s legacy and at least a few glasses raised in his memor