By Dr. Jim Dahle, WCI Founder
Doctors 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.
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#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.
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#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.
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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? Comment below!