Canadians forgot the more you learn, the more you earn

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Many Canadians have tax situations that are straightforward, but their finances can become complex in a hurry if they become financially successful, have international connections or interests, are involved in estate planning or enter the world of entrepreneurship.

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Notwithstanding, it’s been my experience that the level of financial literacy for most Canadians is extremely weak at all levels of complexity. Having a basic level of financial literacy is a must to navigate the complex society we live in, set yourself up for an eventual and comfortable retirement, and make better and informed decisions when voting for and choosing our country’s elected leaders.

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I’m convinced that better choices at the ballot box would be made across the board — federal, provincial and municipal — with improved financial literacy.

I recently spoke at a professional event in Kelowna, B.C. The night before, I went down to the bar in my hotel to get a drink to bring up to my room. As I waited, I was standing next to a couple of barflies. One of them was rather young and the other was older.

The younger one said, “I think when your income and wealth is $50 million or more, the tax rate should be 100 per cent. I mean, $50 million sounds like a good number … no one will be able to spend that amount in their lifetime.” The older fellow responded, “I agree, but I think that 100 per cent tax rate should be restricted to capital gains.” The younger one agreed to that idea.

I found myself very torn, as I often do in situations such as these, as to whether I should try to help these fellows make sense of their nonsensical opinions. One of my missions in life is to plant acorns in the area of tax and financial literacy. Such acorns can grow into the proverbial mighty oak trees.

In this case, I walked away without saying a word. In hindsight, perhaps I should have chimed in to help them improve their tax and financial literacy. However, piercing the bubble of ideology is extremely challenging. It’s really only effective if a partisan-driven person has a sound education in financial literacy and, more importantly, they are open to new ideas. Many do not. It’s much easier to live in an echo chamber and hope that things work out and your beliefs get validated.

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Building on the above, my youngest son is an aspiring entrepreneur and has lots of good ideas. “Mom and dad, here’s my proposal: will you invest in my business?” My usual response is that we’re happy to consider such an investment, but not without him having a basic education in business and financial literacy first.

To his credit, he recently signed up for a business diploma program at a school in Calgary. The questions he has been asking me recently about some of his class content along with the twinkle in his eye are inspiring. He’s learning the basics of accounting, finance, economics, marketing, entrepreneurship, tax and other valuable topics. If he ever realizes his entrepreneurial aspirations, he’ll be much better equipped.

That leads me to the current political situation in Canada. As most know, Parliament is prorogued until March 24. In the meantime, the Liberal Party is furiously trying to crown its insider, Mark Carney, as its new leader. Carney has been directly or indirectly involved with advising the Canadian government and Liberal Party for the better part of the past five years.

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Given his impressive academic background and quasi-government positions, he is being positioned as the “saviour.” Well, there’s lots to quibble about that positioning, including his historical economic record.

Carney is famous for letting his strong ideology on climate matters — which are highly debatable — get in the way of sound economic plans. Many, including me, put him into the “tax and spend” category. If he had any involvement in Canada’s tax policies for the past five years or so — and it’s highly likely he has— then one can also take significant issue with such policies.

From the ridiculous capital gains proposals (which, in an amazing and politically convenient flip-flop, he recently said he would drop, as did former finance minister Chrystia Freeland, who introduced such proposals) to the short-term rental expense prohibitions, the nutty “flipping tax” and a host of other politically motivated tax policies likely had Carney’s blessing. Accordingly, if he were to become leader and prime minister, could Canadians expect better tax and economic leadership? Doubtful.

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Speaking of leadership, it’s pretty obvious Canadians want real leadership to help navigate during this obvious time of turmoil. We can’t continue with a lame duck prime minister, government and prorogued Parliament. Once the new Liberal leader is elected, it would be a shame if the NDP cut a deal to continue Parliament rather than calling for an election.

Overall, it’s time our government showed strong financial leadership, including good tax and economic policies. Such examples would go a long way to paving the path for Canadians to also improve their financial literacy. Governments benefit from a financially informed population through reduced social spending, a stronger economy and likely increased tax revenues.

As the American economist and former United States Federal Reserve chair Alan Greenspan once said, “The No. 1 problem in today’s generation and economy is the lack of financial literacy.”

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That’s why country’s leaders need to plant acorns to improve such financial literacy and show good stewardship and examples. The last thing we need is continued out-of-control spending, divisive politics and poor tax policies in the name of warped ideology.

Kim Moody, FCPA, FCA, TEP, is the founder of Moodys Tax/Moodys Private Client, a former chair of the Canadian Tax Foundation, former chair of the Society of Estate Practitioners (Canada) and has held many other leadership positions in the Canadian tax community. He can be reached at kgcm@kimgcmoody.com and his LinkedIn profile is https://www.linkedin.com/in/kimgcmoody. 

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