Posted by: notdeaddinosaur | August 28, 2011

Personal Finance for Everyone

KevinMD has a new post about doctors and personal finance. To whit: he buys into an old canard about doctors being lousy money managers, going so far as to advise courses in personal finance as part of medical education. My response: hogwash!

Kevin begins with the widespread but false generalization that doctors aren’t good with money. He goes on to try and explain why, trying to blame:

…their training, which more or less immerses them in the sheltered world of medicine for seven or more years. After graduating, they’re entrusted with significant debt along with a six-figure income. It’s no wonder that many squander that money, instead of sensibly investing for the future or paying off loans.

Granted Kevin got off on this via an article in the New York Times by one Ron Lieber, who blithely prattles on in much the same way:

They take eight or so years off from the world to do nothing but learn how to be doctors, then receive a six-figure annual paycheck with no real idea of what to do with it.

Oh, please. Has anyone offered any actual data to confirm this widespread impression of doctors and their money being easily parted? It all sounds completely anecdotal and sensationalistic to me. We in medicine should be especially aware that just because many people believe something to be true does not make it so. How many times have we discovered things that “everybody knows” just aren’t so? Things from bone marrow transplants for metastatic breast cancer to bland diets for peptic ulcers have all been shown not to be true. Why are we so ready to accept Kevin and Lieber’s premise?

There are plenty of other scenarios that come more readily to mind to explain the apparent stereotype: money managers — those quoted by folks who write for the New York Times, at any rate — are perhaps more likely to have physician clients who are suboptimal at managing their money. Certainly those foolish enough to be taken in by outrageous investments are far more memorable than their more sensible colleagues. Those physicians who are capable of managing their own finances fly under the radar, making sensible investments on their own, living their lives, minding their own business.

Some doctors are good with their money; some aren’t; probably in pretty much the same distribution as the general public. Lessons about money, including basic principles of debt, saving, investing, and lifestyle, are — or should be — taught and learned not only way before medical education, but preferably before puberty.

I won’t deny that Americans in general seem to be pretty piss-poor at money management. I think financial management should be an essential part of the high school curriculum, as much or more so than sex education. Then again, money is often an even more sensitive topic than sex, so I’m not holding my breath.

I find it mildly insulting to be assumed to be lousy at business just because my formal degree is in medicine. I absorbed basic business principles at my father’s knee. If I ever do manage a six-figure paycheck, I’d know exactly what to do with it. I think it’s high time we quit singling out doctors as requiring remedial financial education, and concentrate on finding ways to make sure primary care medicine generates enough of an income to live on.

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Responses

  1. Dr.Dino’s father is delighted to hear that a daughter admits having learned something at her father’s knees.

  2. A colleague of mine used to work for a debt counseling company and of her 35-40 clients, 15 were dentists or doctors. They pretty much fit the stereotype mentioned in the articles that they saw the nice paychecks and went and leveraged themselves to the hilt with a new, big house, new top-end autos, and lots of play toys. Throwing those payments on top of med school, and viola, they were stretched thin. The ones that were seeking help realized that they shouldn’t be living paycheck to paycheck with their earning and were seeking out payoff terms with the various creditors.

    As you mentioned, not every Doctor is poor with finances, not every Doctor gets themselves over-leveraged, and not every Doctor would benefit from required finance courses. They just make easy targets because people associate Doctors with wealth.

  3. If we’re going to stereotype people, I would still disagree with the Times’ assessment. Let us not forget how many doctors are also Jewish.

  4. Although doctors may not be any worse than the regular population at financial management and many doctors are quite good at it, they are facing a number of challenges that other professionals don’t and generally seem to do worse than other professionals of similar educational level. It may be anecdotal, but I suspect that there’s a reason that little cottage industries of financial services scams develop that specifically target doctors and dentists. As you said, there are a lot of doctors that have trouble with finances for the same reason that everyone else does, but they also face a few profession-specific risks.

    For example, I have one friend who is a doctor. He buys malpractice insurance, obviously. This is the insurance company’s “in.” Now he’s bought the world’s worst disability insurance policy and nearly bought a clearly fraudulent life insurance plan. Once the insurance company knows you’re a doctor; that’s it. You can be guaranteed that they’re looking for ways to sell a lot of additional products at very unfavorable prices, particularly by appealing to the insecurities of doctors who are practicing on their own or in small groups.

    The other “in” is through taxes. As Kevin MD noted, seasoned doctors are often in a high tax bracket. They seem to be particularly susceptible to investments designed to reduce their tax burdens. The list of scams involving depreciating rail cars, splitting avocado groves, trading in propane futures–all designed to “maximize tax writeoffs”–is stunningly long. The guys running these schemes go after doctors and dentists in particular because they have a relatively high income and are eager to dodge taxes. They tend not to go after lawyers too much, for example, because lawyers will hound them forever if the investment goes bad, and it always does.

    Basic personal finance can get most people very far. But at the same time, particularly for higher-income doctors, it helps to know to never, ever, ever, ever, ever buy a whole life insurance plan that guarantees a return of 5.5 percent, or know the tax implications of an actively traded mutual fund compared to an ETF without having to consult a financial adviser who charges a fee for managing your money (and rarely has your interests at heart).


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