Why Your Stressed Out Doctor Needs a Financial Checkup
By Dan Kadlec
October 24, 2017
It’s gospel on Wall Street that doctors and dentists make terrible investors. One reason: they view themselves as quick studies able to make snap decisions–as their line of work may demand. That leaves them vulnerable to any scam artist with a slick sales pitch.
Medical pros make tons of money. So who cares, right? Well, they are not as well off as you may believe, thanks in part to med-school debts. So when your doctor loses money, like anyone else he or she may become stressed and lose focus. That is not good for patients, who may not get the care they expect–and may even sign up for suggested but unneeded procedures.
The bottom line is that we’d all be better off if these professionals better understood personal finance, including simple concepts like the near infallibility of long-term diversified investing. As Warren Buffett notes: The Dow Jones industrial average, now at 23,000, will hit 1,000,000 in your newborn child’s or grandchild’s lifetime. (More on that below.) Overall, financial understanding of all individuals–not just medical people–appears to be getting worse. (More on that below.)
Back to those medical professionals. Describing how he found his marks, convicted felon and investment scam artist Eric Stein in 2004 toldThe Wall Street Journal: “They were people who were already successful. They were people who had cash, had made money, and had worked very hard for it. They were doctors, they were dentists.” Indeed, a study out of the U.K. found that 15% of investment scam victims were doctors or dentists.
But scams are only the start. Physicians tend to have a fundamentally poor understanding of financial concepts, according to AMA Insurance, part of the American Medical Association. Despite their education and income, at every stage of life doctors’ top financial concern is having enough money to retire, AMA found.
Many just are not wired for managing their big incomes and big debts. Asked if they were ahead of their retirement plan, doctors answering yes accounted for just 7%, 11%, 13% and 11% of those in their 30s, 40s, 50s, and 60s, respectively. If that sounds like pretty much everyone else…
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…well you get the idea. Wealthy individuals may have the means to overcome this deficit—by absorbing losses and mistakes or hiring a trusted financial adviser. But it still ads stress to their life, which in the case of medical professionals can ricochet back on their patients.
Consider: 28% of dentists recommend unneccessary fillings, according to a study out of Switzerland. Researchers sent a man in his 20s with perfect teeth to 180 dentists, and 50 told him he needed work. The 50 dentists recommended between one and six fillings on a total of 13 different teeth. The average price of suggested work: $550. This study did not look at the finances or the financial acumen of each dentist. They might have been greedy–or they might have been trying to recover from losing thousands in a penny stock or on Florida swampland.
Financial stress has been closely tied to burnout among Medical trainees in particular. Med school grads have median outstanding debt of $180,000. Those with more than $100,000 of debt are 50% more likely to contemplate suicide. Most doctors are dissatisfied with the job, and less than half would choose a career in medicine if they were able to do it all over again, Nerdwallet found.
Slowly, the AMA is beginning to recognize the toll this stress takes on physicians who, along with tending towards quick decisions with little financial knowledge, are among the most indebted segment of the population. The University of Colorado in Aurora, for one, has begun tinkering with financial education programs expressly for medical students.
That’s a good thing because the financial stress among med students starts early. An AMA report this year found that 71% medical students say they lack the knowledge to be able to pay off their loans. They cited the high cost of tuition, lack of time to look into financial matters and not knowing who they can trust.
Doctors who say they are ahead of the retirement savings game cite six characteristics of their success. And since we have just learned that doctors are like everyone else in this regard, everyone else could benefit from the advice of the docs who are doing it well. Here is what they counsel:
–Take the time to learn and understand personal finance.
–Find a professional financial adviser you trust.
–Get serious immediately about repaying your medical student debt.
–Don’t let anything get in the way of contributing the maximum to tax-advantaged retirement plans.
–Think about estate planning well before you expect to retire.
–Have confidence in your decisions, once you have investigated options.
Dow one million? Yes, in your newborn’s lifetime says Buffett
The Dow has been setting record highs regularly this autumn. But it remains an awful long way from one million. Then again—maybe not so long after all, Warren Buffett suggests.
With nothing more than historical average annual returns the Dow, which recently crossed 23,000, will hit 1,000,000 in 100 years. That means a child born today has a good shot at seeing that milestone fall. Life expectancy at birth is in the high 80s, but continually expanding. Half of all newborns in industrialized countries will live past 100, scientists believe. The first human that will live to 150 has already been born, actuaries say.
Why does this matter? Buffett is a smart guy. But even he would say that patience played a bigger role than smarts in building his fortune. His ideal holding time for a stock, he has said, is forever. Such is the allure of compound growth.
In the Wall Street Journal, Buffett points out that the Dow has climbed 5.8% annually over the past century. For it to hit one million by October 2117, the market would need to return just 3.9% a year, on average. That’s not only doable; it’s likely.
You and I won’t be around in 100 years. But some of today’s youngsters will be—and even for those of us who are older the same lesson applies. Compound growth over many years—20, 30, 50—works miracles. But you have to own assets that grow.
Dow one million is a great way to introduce to students the difference between saving and investing. Not spending everything you make is step one. That’s saving. Where you put that money is investing. Understanding the difference, and getting comfortable with the near-term risks of growth assets like stocks and real estate, are key concepts that should be part of any financial education curriculum.
The basics of saving and budgeting are important. But investing is how you reach long-term financial security. The big idea that the Dow will reach one million in a student’s lifetime is a great way to grab their attention. Youngsters aren’t likely to relate to a discussion about retirement. But give them an eye-popping target like Dow one million—and the pixie dust of Buffett’s brand—and you just might plant a valuable seed.
A leader in financial education, Australia will now rethink its approach
Few countries have tackled financial literacy more aggressively than Australia, where schools must provide a class in money management. Yet financial capability appears to have slipped, research shows.
The global financial literacy push has deep roots, and it got a huge boost after the Great Recession. The idea was that a little more knowledge about mortgages and compound returns would help keep the world from falling into another financial crisis.
Yet an Australian study found that five years after the recession the number of adults able to recognize an investment that was too good to be true—say, a bond with low risk but an extremely high yield—had edged lower, to 50% from 53%.
The study also found that those who understood that even good investments almost always fluctuate in value had fallen to 67% from 74%. Meanwhile, an Australian Productivity Commission survey found that 22% of adults have low numeracy skills and are not able to understand the effect of an interest rate change on their variable-rate loan payment.
These studies are a few years old. But they came well after the recession had ended and Australia and others had formalized a national strategy for financial education. Down under, this is of concern now because the nation’s formal strategy is authorized only until the end of the year. Critics may point to such findings and say, why bother?
One answer would be that it is much too soon in this effort to give up. Researchers are unlocking more effective teaching methods every day. And some decline in financial literacy was to be expected once the crisis passed and individuals were less focused on the issue.
The response in Australia bears watching. A leader in the space, it must now grapple with tepid results and an expiring national strategy. No one expects the government to give up. Let’s see what new twists they bring to the mission.