Physicians Are Financially Illiterate

[The White Coat Investor]

I was published on KevinMD this evening with a piece called Doctors Are Financially Illiterate and it's time for that to change.

Originally published here: http://www.kevinmd.com/blog/2017/03/physicians-financially-illiterate-time-change.html?

Despite above average intelligence and work ethic, the average physician is an absolute imbecile when it comes to the topics of personal finance, investing, and business. The lack of expertise on these critical life topics is having a dramatic effect not only on the financial lives of physicians but also their rates of burnout and thus their patient care. In past decades, by virtue of their above average income, a physician could make up for numerous financial mistakes without a serious effect on her financial life. Due to the rapidly increasing cost of a medical education, the serious downward pressures on physician incomes, and the increasing complexity of our financial world, this is no longer the case.

It is now routine for physicians to exit residency with a debt burden of $300,000 to 400,000 or more, with that debt accruing interest at rates of 6 to 10 percent. This is a result not only of medical school tuition inflation, which has been increasing at twice the rate of general inflation and three times the rate of physician income increases, but also poor financial management decisions by physicians starting from their time as an undergraduate student. Simply put, doctors borrow too much money, manage their debts poorly, and pay them off too slowly. Increasingly, physicians find that their children are starting college before their own educations have been paid for!

This debt load, when coupled with the traditionally poor financial management habits of physicians and a financial services industry that has traditionally targeted doctors as “whales” to be harpooned, is causing severe financial difficulties for a rapidly rising percentage of physicians. Increasingly, doctors evaluate jobs more for their income potential than whether it is a good fit with their career goals and the reasons they went into medicine in the first place. This obvious conflict between their ideal life and their actual life leads to burnout, which leads to bad medicine. In short order, the patients become just as unhappy as the doctors.

The solution to this serious issue will require the assistance of three groups of people: medical educators, physician-focused financial advisors, and the physicians themselves. There are a myriad of financial pressures on medical schools to increase tuition. We as a profession and as a society need medical schools to do a better job of holding the line. The trend toward “for-profit” medical education will not be without consequence. Medical students don’t need the latest and greatest in classroom technology, nor in on-campus amenities. Most real medical education occurs only due to the benevolence of caring academic physicians anyway. Give serious consideration to any expenditure that will result in a significant tuition increase. Online learning, particularly in the first two years, has the potential to not only reduce the cost of medical education, but also to increase the quality.

In addition, medical schools need to incorporate a business of medicine class into the latter half of the fourth year curriculum. This should include not only “professional” topics such as practice management, coding, and billing but also “personal” topics such as budgeting, student loan management, investing, estate planning, and asset protection. The University of Arkansas for Medical Sciences has successfully implemented a business of medicine course. It’s time for every medical school to have one. There is no valid excuse not to.

For far too long financial advisors have specialized in marketing to physicians instead of actually helping them. Physicians have unique financial concerns including a late start to investing, large student loan burdens, complex tax situations, numerous available retirement accounts, and asset protection concerns. Instead of focusing on gathering assets under management or maximizing commissions, advisors need to become experts on the actual financial needs of physicians. In addition, it is time to offer that good advice at a fair price. Too many doctors working with advisors, even advisors giving otherwise good advice, are paying a five-figure amount each year for that advice when they could be getting it for a few thousand a year.

Finally, the doctor is still the captain of the ship. We as physicians need to take responsibility to become financially literate. In our 401(k) world, we all have a second job as a pension fund manager, whether we like it or not. We can hire a consultant (i.e., a financial advisor) but we cannot just expect our “money guy” to take care of everything if we hope to be financially successful. If our medical schools won’t teach us the basics of personal finance and investing, we need to learn it on our own. When the student is ready, the teacher will appear. It turns out there are numerous books, blogs, and online forums that can assist in this self-education process. Even for those who still choose to consult with a financial advisor, this additional knowledge will help you to make sure you are getting good advice at a fair price.

Medical schools, financial advisors, and doctors themselves all have a responsibility to boost physician financial literacy. Not only will this allow physicians to be the “rich doctor” that their family and friends already think they are despite their negative net worth, but it will allow doctors to practice in a way that is best for their patients and their own career longevity.

James M. Dahle is the author of The White Coat Investor: A Doctor’s Guide To Personal Finance And Investing and blogs at the White Coat Investor.

 

What'd you think?

[DMFA]

A diamond in the tear-drenched, self-indulgent rough of a journalistic wasteland that is KevinMD.

[The White Coat Investor]

DMFA wrote:

A diamond in the tear-drenched, self-indulgent rough of a journalistic wasteland that is KevinMD.

Click to expand...

It's not the front page of CNN or the NYT, but it gets about three times the monthly traffic as this site and his social media accounts are 50 times the size of mine. Lots of doctors eyeballs on this message is a good thing.

[G]

Well said.  The term "Manifesto" comes to mind.

[DMFA]

The White Coat Investor wrote:

DMFA wrote:

A diamond in the tear-drenched, self-indulgent rough of a journalistic wasteland that is KevinMD.

Click to expand…

It’s not the front page of CNN or the NYT, but it gets about three times the monthly traffic as this site and his social media accounts are 50 times the size of mine. Lots of doctors eyeballs on this message is a good thing.

Click to expand...

Oh yes, it's great to see quality writing on an important subject in a place that gets website hits. I don't run a website or work in advertising, but I'm familiar with what generates traffic in this day and age: emotional drivel like Pamela Wible.

It's where you want your stuff to be if you want it to be seen, and it's way better to see something that will actually help fix massive problems in people's lives than just another piece pandering to gluttons for self-pity.

I read it, I understood it, I liked it, and I want to see more like it there.

[VagabondMD]

Well-written, as always, but I take issue with one point. I do not believe that it is the responsibility of the medical school to educate the physician on personal finance issues, any more than it is the responsibility of the engineering school or the law school. I believe that a basic education on personal finance should be part of the education of everyone. Do you think it would destroy our math curriculums in K-12 if we taught one week of basic money competency every year?

I agree that medical schools should help physicians by keeping costs down as much as possible (yeah, right!), and a business of medicine course is a must. The basic personal finance education belongs further upstream, IMO, as everyone would benefit from it, and it really falls outside the mission of a typical med school.

[The White Coat Investor]

The problem is it falls out of the mission of every school.

The nice thing about an MS4 Business of Medicine school is it is "just in time" education. We need snippets of high-quality "just-in-time" education throughout our education and careers.

[TheAbacus]

WCI - Perhaps this MS4 Business of Medicine school could be the pinnacle of the WCI mission. You could achieve it by convincing medical schools of its importance. Sort of like how Dave Ramsey spreads his message through local churches.

[The White Coat Investor]

TheAbacus wrote:

WCI – Perhaps this MS4 Business of Medicine school could be the pinnacle of the WCI mission. You could achieve it by convincing medical schools of its importance. Sort of like how Dave Ramsey spreads his message through local churches.

Click to expand...

It's on the list of things to do, but obviously a massive project.

[Live Free MD]

Personally, I think financial education needs to be directed to an even younger audience, such as the high school or undergraduate student thinking of medical school.  It might be too late by the time someone is in the fourth year of medical school.  How do we get this message out to the younger audience?

[PhysicianOnFIRE]

I'll admit to writing a piece with KevinMD in mind -- sometimes when particularly frustrated (like with MOC). Most have not been whiny posts, though.

I submit there and hope that a subset of his readers will click on my name and learn something useful on my site. These are the posts I've published there thus far:

 

It’s time for physicians to practice an evidence-based life April 20, 2016

How this doctor achieved financial independence at age 39 May 16, 2016

When this doctor retires early, here are 4 things he’ll miss June 10, 2016

We were promised death panels July 18, 2016

Boo! Being a physician can be downright scary October 31, 2016

Urban Meyer has a message for you, doctor December 5, 2016

Who Are the Physicians That Retire Early? February 1, 2017

A physician’s MOC debacle: Nevermind that $2,100 exam he just passed March 5, 2017

 

Cheers!

-PoF

[ENT Doc]

Financial advisors will always be incentivized to try to take more of our money.  The only way around that IMO is to create a savvy group of doctors who don't fall for their tricks.  Demand for their high-priced and low-value services would dry up, forcing them to compete using lower cost, fee-based or hourly-based models.  How to do that?  Mandatory Economics/Finance classes in high school.  Mandatory personal finance course in medical school.  Within 10 years you'd have a much more well-informed group of doctors who will not only seek better value from schools but won't fall for financial services industry tricks.  This would mean getting the government (federal and/or states) to adopt this strategy for high school and to get the AAMC to advocate for it for medical schools.  The former is a massive undertaking but the latter might be accomplished by physician efforts.

Education alone will not solve the student debt problem.  Speaking specifically to physicians, undergraduate debt is created by two factors - students reaching for high-cost, low-value schools, and the schools themselves.  I don't know how you change a culture absorbed in rankings, but the ranking system of colleges incentivizes bad behavior from both parties.  Schools have firm control over some very important components of their ranking, namely in the spending arena.  Faculty salary is given equal weight to SAT scores and is deemed 7 times more important than faculty-to-student ratio.  Also, how much a school spends per student is deemed as more important than any student-specific factor.  These rankings incentivize more spending and more costs but not more value.  I have no doubt that medical school tuition is increasing at such an alarming rate due to similar perverse incentives.  Something both undergraduate and graduate schools understand is money.  I suggest drying up the funds - absolutely zero money to be given to a school that increases their tuition more than inflation.  How to do that?  Websites like this, KevinMD, and others.  Lord knows organizations like the AAMC and AMA aren't going to be advocates for this.  This needs to be a grassroots effort.

The alternative is to do nothing and let student debt snowball to the point where it becomes painfully clear that going into primary care is a financially disastrous decision.  And that would be a shame.  The need to increase primary care physicians (touted by the AAMC) is not compatible with their schools increasing tuition at the rates they are.  Perhaps that's the angle we as physicians could take as well as drying up funds.  Even if you're not a primary care physician you should want your colleagues in primary care to be well taken care of and to be well-educated.  This advocacy helps all of us, including our patients as WCI points out with respect to burnout.

[Hatton]

Really great article WCI!  I had never heard of KevinMD until I saw some links on POFs blog.  I go there only if I see a link from another blog.  Your point on the need for medical schools to rein in their costs is a good one.  I feel strongly that the current path is unsustainable.  I agree there is little need for classroom cutting edge tech and online courses would be a good idea. Unfortunately lots of young premed students do not realize how much all this costs them in later life.  I agree with Vagabondmd as usual that financial Ed should begin in high school.  Medical school should teach the business of medicine.  I think the reason it is not taught is twofold. First medical school is a business and a tuition cut would hurt the model and secondly few people in academics have ever run a medical business.

[FutureDoc]

This absolutely resonates with me.  I kind of imagine that the physician finance community is currently at a "grass roots" type level.  It's greatly improved over the past five years thanks to WCI and many of the attendings out there who spend time educating students, however we need to increase connection to new graduates and empower medical students and residents to take control of their financial lives.  The single most common theme I have seen (in my albeit short time) is learned helplessness where trainees just accept that they can't do anything about their debt and so ignore it until after residency rather than being proactive.

[VagabondMD]

I received wise financial advice from two attendings in training. I doubt that I was the only one to whom they gave the advice. Largely, it was to take the time and get a financial education. One told me that I should read "Making the Most of Your Money" by Jane Bryant Quinn (https://www.amazon.com/Making-Most-Money-Bryant-Quinn/dp/0684811766), a classic personal finance tome. But you are correct in that this is probably too late to start learning. One can do a lot of financial damage before one gets to the end of training. I just do not think that medical school is the place for it or they will do a decent job at it.

Financial lessons occur throughout life, for all people, and while doctors, as a group, make a relatively high salary, they are not immune to the same traps and pitfalls as others. Perhaps the fact the financial risk:reward profile for docs has become more out of balance means that the lazy, dumb money mistakes that docs could make in a previous generation are more damaging if made today. Then again, just like the overall population, from the chronically unemployed to the low wage laborer to the middle or professional class (including MDs) to CEOs and hedge fund titans, there are a segment of the herd who are inherently financially unwise and will shoot themselves in the foot at every turn.