I’m not really sure who is at fault, but somewhere along the way, our educational system decided that teaching personal finance is unnecessary. We learn calculus, the rules of dodgeball and even sewing, but financial management is taboo. Then, all of a sudden, we head to undergrad and medical school, and before we know it, we’re in our late 20s or early 30s financially illiterate.
The consequence of this was shown in a 2014 report on U.S. Physicians’ Financial Preparedness by the AMA which showed 70% of young physicians said they felt only somewhat knowledgeable or not very knowledgeable in regard to their financial acumen; only 5% said very knowledgeable. The only reason I am fortunate enough to be in that 5% is because I’m a former investment banker and studied finance in undergrad. I decided to switch to medicine and when I met many of my classmates during my first year, I would get basic questions such as the difference between a stock and a bond.
As I talked more and more to my classmates, I realized the problem has been the complexity of what’s out there. I decide to seek out creating simple lessons that medical students and young doctors needed to know in order to feel comfortable with the “non-debt” side of their finances. Over the last three years at my medical school at Brown University, I have taught these basic principles with one goal in mind: learn the principles now so your career decisions aren’t based off money later.
At the start of the lecture, I introduce two “friends” of mine, Pete the Pediatrician and Nancy the Neurologist. The story behind these two are both wanted to become pediatricians but Nancy was worried that she wouldn’t make enough money in Pediatrics so switched to Neurology. However, Pete learned basic investing techniques and started when he was 30, while Nancy learned later at 40. Here’s what the results look like:
I’ve taken the average salary per the Careers in Medicine website and assumed that both save 5% of their paycheck. That means that Nancy is saving more money each year and doing it for 30 years and still ends up with less than Pete, who started 10 years earlier and contributed 20 years less. If Pete is targeting $2.5m at retirement at 75, he can spend that “extra” $11k each year as discretionary income. This, right here, is the importance of starting early and how it can impact the career you go into.
A Medscape survey performed in 2016 asked physicians if they feel fairly compensated. The lowest earning physicians are pediatricians at $220,853 on average. The highest earning are orthopedic surgeons at $443,000 on average. In the United States, this puts you between the 1st and 6th percentile as earners for a household. Yet, in nearly all specialties, about 50% say they do not feel fairly compensated. How can this be possible?
Most of my friends who graduated with me in undergrad are earning six figures. If you’re smart enough to get into medical school, you’re absolutely smart enough to land a high paying finance job (trust me). That means between the additional 4 years of medical school and 3-7 years of training, you are losing close to $1 million in gross earnings. But maybe just as important is you are losing years of learning to manage your own money. Friends of mine in their early 20s that started earning money took 5-10 years to learn how to invest and manage that money properly. When they turned 30, they were ready to invest properly and had an income to invest. If you’re a medical student and wait until you are earning money and then start to learn, it may take you 5-10 years to feel comfortable and at that point, you may be 40 years old and late to the game, just like Nancy the Neurologist was and feel that you aren’t compensated fairly because you are playing catch up.
It seems counter-intuitive but the time to learn the basics of financial management is during medical school, when you don’t have any income. That way, you can hit residency running and know immediately how you want to manage your finances. And most importantly, that residency can be chosen based on your interests and not based on finances.
Aashish Shah is a medical student and author of Ten Simple Finance Rules for the Medical Student and Young Physician.
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