By Dr. Jim Dahle, WCI FounderDoctors have long had a reputation for being terrible with finances. Obviously, it's a stereotype, so there are a lot of people out there who aren't nearly as bad as the average, but the average is still pretty darn bad. This has been well documented for many years, perhaps most excruciatingly in The Millionaire Next Door where doctors are the classic example of Under Accumulators of Wealth. Sucking at money is pretty common, and it's almost like you have a superpower if you're actually somewhat competent.
Today, we're going to discuss the eight reasons WHY doctors stink at handling money. If it makes you feel better, it's not all your fault. But it mostly is.
#1 Doctors Have No Financial Training
The typical educational pathway for a doctor is to leave high school, where there was likely no significant financial coursework, and enter college directly, majoring in a science like chemistry or biology. Typically, no business or finance courses are taken in college. Then comes four years of medical school, where most schools may have a lecture or two about student loan management at best. This is followed by 3-5 years of residency and perhaps 1-3 years of fellowship. Financial training there consists of a visit from the local whole life insurance agent. Then, this doctor gets dropped off into the world at age 30-35 with a pretty good income and zero knowledge of what to do with it. To make matters worse, nobody even talks about the business of medicine the entire way through training. In fact, any sort of money subject is taboo, and you are looked down upon to even bring it up.
Thus, generation after generation of trainees and doctors get dumber and dumber about money, business, and finance. With the movement into employment and away from business ownership, this factor is getting even worse. Thank goodness for a few dedicated folks writing books, penning blogs, recording podcasts, running Facebook groups and forums, giving lectures, and teaching courses on this material. Without that, no docs would ever learn it.
More information here:
Why Doctors Get Paid More in the US (and Why Some People Hate It)
#2 Targeted by the Financial Services Industry
To make matters worse, the “helpers” in the world actually target doctors to sell them financial products. Those are often not even the financial products they need; they're usually the ones that pay the highest commissions. Nearly every doctor is targeted at some point by a salesperson from an insurance company, wanting to sell them a high-commission, low-returning whole life insurance policy even though they have six figures of 7% student loan debt. Or perhaps it's an annuity salesperson or a loaded mutual fund salesperson masquerading as a financial advisor. Or even an attorney using fear of malpractice lawsuits to pawn complex trusts that may not even work in the extremely rare chance they might be needed. Perhaps it is a realtor looking to sell a McMansion or a mortgage agent with a special doctor mortgage. How about the plethora of investments sold only to accredited investors (which nearly every residency graduate qualifies for despite knowing nothing about finance and possessing a negative net worth)?
I haven't even broached the subject of actual fraud—whether it is a Ponzi scheme or a thieving office manager—but there is plenty of that out there, too. Doctors are prime targets by virtue of their income, trusting nature, and lack of financial sophistication.
#3 Doctors Are Busy
The life of a physician can be bonkers. The two inpatient/interventional cardiologists I work with split all the call between just two of them, and they cover multiple hospitals. They're great docs, but they sure are busy. Some docs find themselves leaving a residency that limited their work hours to 80 a week only to discover they are now working even more. When you are that busy, it is hard to find the time to budget and invest, much less learn anything about money. You wouldn't even have time to meet with a good financial advisor if you happened to luck into getting one. You don't have time to research your purchases, so you end up paying more for everything. Once they find out you're a doctor, you get a special, higher “doctor price.”
#4 Overdeveloped Sense of Mortality
Doctors work with the sick and injured all day long. Many of those people are no older than the doctor. We develop a skewed view of everything medical and start thinking that anyone can keel over at any time from one of thousands of strange diseases. But we forget that the group of people we meet is heavily skewed toward the sick, injured, and downright unlucky. This skewed view of reality causes us to YOLO, Carpe Diem, and basically try to enjoy what we have today because we doubt we'll make it to our golden years. That results in overspending and undersaving, a recipe for financial disaster.
More information here:
10 Reasons Doctors Spend Too Much Money
#5 High Income
A high income is a true blessing when it comes to building wealth. I'm amazed to read non-doctor FIRE blogs. They do strange stuff to build a nest egg rapidly that doctors don't even have to think about doing. All we have to do is live like a resident for a few years after training and then we can spend six figures a year and still retire early. But these other FIRE folks are washing out Ziploc baggies and reusing paper towels. Because the path is so easy, we become like the hare in the classic tale of The Tortoise and the Hare. We spend a little more here and a little more there. We take long naps and don't worry about the race to retirement at all for years at a time. And in the end, many of us finish our careers with nest eggs half the size of the average worker.
That high income is only a blessing if we actually use it to build wealth rather than fritter it away. It gets worse, though. Not only do we think we don't need to be frugal at all, but we find ourselves in the highest tax brackets, watching 25%, 30%, even 35% of our income going to the tax man each year. Meanwhile, the average worker often only loses 5%-15% to taxes, and most of that is to payroll taxes that at least come back in some form later in retirement. We assume this income will just keep rolling in for 25, 30, or even 40 years as we enjoy a long, awesome career. Then, burnout raises its ugly head, and all of a sudden we can't stand our jobs and we realize that we don't know how to do anything else that will even pay $50,000 a year, much less the $250,000 we've been spending. You can't insure against burnout, but you can prevent and treat it.
#6 Rapid Growth into Income
A surprisingly difficult thing to manage is the financial transition from trainee to attending physician. Most people have gradual, step-wise increases in their income throughout their careers. Not doctors. Typical emergency doctors have one increase in income in their entire career. Don't get me wrong; it's a doozy where the doctors basically 5X their income upon completing training. But that's it. In fact, most of them see their inflation-adjusted income decrease throughout their career as they work fewer shifts and, especially, fewer undesirable shifts like night shifts that pay more. This is a difficult transition to make, and if you blow it, it's extremely hard to go back and fix. It just hurts too much to cut your lifestyle once you've grown into it.
#7 Doctors Are Used to Living on Debt
Something bad happens in medical and dental school. Doctors are racking up massive debts, and they are conditioning their minds to get comfortable being in debt. Their financial muscles get all flabby. It all becomes Monopoly money each year as they sign for another $75,000 in debt, more money than they've earned in their entire life. It becomes easy to continue that mindset in residency and beyond. It's not unusual for a dentist to owe $500,000 in student loans, $700,000 in a mortgage, $600,000 in a practice loan, and two car loans—all while earning a small fraction of the total debt amount. If that practice doesn't get really successful really quickly, it isn't going to end well.
Physicians do the same thing, signing on a fat doctor mortgage and a Tesla payment before the first attending paycheck even hits the bank account. Yes, debt can be used to build wealth, but for most people, debt is more like metabolic syndrome, lurking in the background but slowly leading to unforeseen hardship in your 50s and 60s.
More information here:
A Financial Love Letter to My Wife (and the Realities of Living Like a Resident)
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#8 Societal Expectation to Spend
Nobody expects a dry cleaning store owner or a duplex landlord to be a big spender. But they all expect doctors to have fancy cars, fancy handbags, fancy vacations, and fancy houses. Many of them do, but the smart ones avoid huge splurges until mid-career. It might be hard for non-doctors to understand, but every doctor has had the experience of being called “the rich doctor” by their family, friends, and patients—even when they have a negative net worth and aren't even out of training. Sometimes it isn't said, just implied, but the pressure to live high on the hog is there just the same. Too many doctors succumb to it.
For all of these reasons, doctors end up sucking at money. The odds might be stacked against you, but you can overcome them. Forewarned is forearmed. Don't be a typical doctor. If you will live like no one else now, soon you will live like no one else can.
What do you think? Which reasons do you think are most important in this list? What isn't on the list but should be? What have you done to overcome these?
Entitled Spouse. A spouse who feels that they married a doctor, so they can spend like there is no tomorrow is the biggest detriment to wealth in retirement.
You are absolutely right. If your spouse is a non-doctor this is a real risk unless you are able to make them understand early on what finances should be like. I have seen other docs with this kind of spousal expectation and the resulting discontent. I however have been very lucky, in that my spouse was cheaper than I was. She actually pushed us to invest in real estate decades ago with decent long term results. This was instead of buying fancy cars and vacations.
If I had to give two pieces of advice to a doctor it would be: 1. stay away from ridiculously high fee insurance products pitched at u, 2. save a reasonable portion of income and put in low fee index funds.
Great article. I am 2 years out of residency. Another thing I noticed in medical school and residency is that there are many medical students and even residents who are getting substantial “economic outpatient care” from their parents. You probably have data on what percentage this is — but from my anecdotal experience it seemed significant (even at a public medical school). This probably also contributes to this problem. The physicians who benefit from affluent families often have a buffer so they don’t really have to learn about the intricacies of personal finance. Physicians who don’t receive this from their families AND don’t learn about finance can get into trouble because they see their peers doing all of these things like going on nice vacations during every possible school or residency break, going out to nice restaurants/bars etc and these habits stick. Plus there is a sense among medical students and residents that they deserve these things because they are working so hard and sacrificing so much of their youth compared to non-medical peers from college. Keeping up with other Dr Jones starts very early.
Well 27% of students get out without any debt at all and the average debt for an indebted student at an MD school is only about $200K, so that suggests that A LOT of students are getting A LOT of family help. I wouldn’t be surprised to learn that only 1/4 of students didn’t get any help at all. There is some data out there about the socioeconomic class/income of the parents of medical students too. It definitely skews wealthy. Here it is:
https://www.aamc.org/media/9596/download
About half of the parents of medical students are in the top quintile of income and only 20% of students come from families in the bottom three quintiles of income. Education begets more education and income begets more income.
Jim, thanks for that info. Strikes me as a good argument in favor of PLSF, how about you?
I don’t know that it has all that much to do with PSLF. PSLF isn’t income or wealth dependent. It’s only debt and job dependent. A wealthy person can borrow the cost of med school and get it forgiven via PSLF if they want to.
Our columnist, Francis Bayes, wrote about EOC a couple of years ago when he was still in med school. https://www.whitecoatinvestor.com/economic-outpatient-care/
Overconfidence. Thinking we are smarter than financial advisors, or the market. While we may think we know financial markets, or medicine, we should remain humble in our confidence about everything.
Too many docs think they are so smart that they can beat the markets and obviously lose the game. With a late start docs have to be prolific savers and live beneath their means. No fancy cars and luxuries
You are probably correct about many docs thinking this way. However in a few cases, including myself, I got tired of being taken advantage of and I did things on my own with some self education. I’m a family doc, so not a huge income. But clearly what Dr Dahle says is insightful and true.
But I think I did ok by overcoming these hurdles and am able to retire with some security, no debt. And able to afford a few sports cars long the way…
What kind of cars? Which has been your favorite and why?
I have had a Nissan Z car most of my adult life from the 240 then 300zx then 350z and lastly the 370z. Ideal commuter cars (two seaters and small footprint for compact parking spaces), not terribly pricey and fun to drive. Not luxurious but that was not important to me.
But as I got older and we reduced the number of cars in the household, I needed a four seater and I currently have a BMW m240i. The smallest coupe in their line and very, very fun to drive. As long as it does not become a high maintenance cost car, this is my favorite.
And true to the WCI philosophy, I did not take out any loans. I just kept the old car until I could easily afford the next one without altering my basic financial plan.
PA here. Life partner to an MD. I think a dangerous mix of arrogance and ignorance are part of the equation for many. As a couple we manage our finances independently of each other. I’ve been aggressively saving and investing ever since I finished my education and stayed humble throughout. Despite having a NW of negative $150K (undergrad and grad school debt) when I started my career, 17 years later, I now have >$5.4M in assets and a NW of >$3.8M. Also, my liabilities are being paid down by my tenants. I’ll be able to retire comfortably before age 50 should I choose. Were as my significant other, the MD, who has been a high income earner for the past 17 years, spends the vast majority of her income, barely contributes to her 401k, has no other investments, and still has a mountain of debt (think Andes, not the White Mountains) . She believes she can happily work for decades more and with a high salary will eventually amass a significant retirement portfolio. It’s hubris of course. If you don’t have the financial skills and literacy now, you won’t develop them magically in the future. You’ll need to gain insight into your behavioral finance shortcomings but it is very difficult for otherwise elite academic achievers to admit they are ignorant about certain subjects. I’ve seen a similar mentality with other highly intelligent people, such as my father who was an electrical and aerospace engineer. It was the toxic mix of arrogance and ignorance that lead to him blowing his life savings in the stock market, believing he was smarter than the rest and could outperform the market.
Yes, it definitely plays a part for many. Conversely, so can a lack of confidence cause people to leave all their money in cash and low returning investments. Gotta get it just right.
I can’t imagine the financial discussions you and your partner must have, CMAC. Or maybe you can’t have such discussions at all. I would hope you could educate her to be more thrifty. Perhaps counseling would be in order. I fear for your long-term future together. My $0.02.
I have tried ad nauseam to educate her on finances or to encourage her to seek assistance from a financial advisor but have been met with anger and defiance throughout the years. I’ve run out of ideas on how to help her develop financial literacy and get her on the track for financial independence.
It’s more a marital issue than a financial one unfortunately. When two people care about each other and their dreams and are willing to act like adults, they’ll make the sacrifices and compromises necessary to keep each other happy.
Focus on the end. On your goals. Then work backward. “educating her” rather than talking together about your hopes and dreams might not be the best approach.
I agree with everything you’ve said. Unfortunately, I’ve tried to reframe the issue by discussing what we want out of our retired life and then slowly back track into discussing how to reach those goals. Her default answer is always in regard to our kids having to take care of her financially once they are adults or her escaping debt by moving back to her country of origin. Frustrating to say the least as I would never consider those two options as reasonable. I’m likely dealing with her deep seeded cultural and familial behaviors that I am not equipped to change.
I agree, there’s clearly a cultural issue there as at least the first is very normal in non-Western cultures. Good luck. We’re all rooting for the two of you to work this out.
Sounds like you are her retirement plan
I could not disagree more as the majority of Physicians I know are excellent at managing money—what I recommend to all my fellow physicians is to fire and then never, ever hire any “Financial Advisor” —do it your self with no fees. Physicians are far more educated and intelligent then the people who claim to be their “Financial Advisors”…
Wow. I’d say you’re in a pretty rare situation. I’m glad to hear you are though.
My advice would be. Don’t get divorced. Of my colleagues who struggled financially they had the poor judgment of marrying poorly and then being financially devastated after they were divorced. Secondly I disagree about financial managers but they should be managers that get paid on the basis of how you do and not churning stocks. Thirdly don’t get involved in things you’re not comfortable with such as real estate investment. Next is to live low on the hog for 10 years after your residency and save like crazy. Most importantly do something you really like, not something that pays well. I like what I do and at 85 I’m still working three days a week. And I get as much vacation as I want
Very few people who consider themselves financial advisors get paid based on their “performance” if by performance you mean investment returns.
I’m not sure that bragging you can get as much vacation as you want and only have to work three days a week at 85 is impressing too many docs! I think we’re all just impressed that you’re still working as much as you are. What a wonderful sense of calling to still be at it in your 9th decade.
I’m investing a little but I am aggressively paying off my debt. I am amazed the amount of highly intelligent people who don’t know what an amortization chart is and how to use it.