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.
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