By Francis Bayes, WCI Columnist

In The Millionaire Next Door, William Danko and Thomas Stanley define economic outpatient care (EOC) as “substantial economic gifts and ‘acts of kindness' some parents give their adult children and grandchildren.” If you heed the advice of the White Coat Investor or like-minded resources, you, as a physician or other high-income earner, will be in a position to provide economic outpatient care. The WCI has written articles on his plans for his children.

But I'm also an EOC-recipient, and since reading this classic financial book, I have realized that EOC has affected me in terms of behavioral finance, financial planning, and career goals. Even though I no longer receive EOC, I need to constantly reflect on my sense of entitlement and fear of failure because I want EOC to help, not hurt, me in my journey as an aspiring millionaire next door. Here's why I seek to monitor these two psychological characteristics in myself.


Impact of Economic Outpatient Care

EOC can be a double whammy. The parents who provide EOC have less wealth than those who do not, and the more EOC adult children receive, the less wealth they accumulate. When Danko and Stanley wrote their book in the mid-1990s, more than 46% of the “affluent” gave at least $15,000 (i.e. the gift tax annual exclusion), and nearly half the children of affluent parents received annual cash gifts. In contrast, more than two-thirds of the millionaires surveyed for the book received no economic gifts, excluding college tuition.

My parents have financially supported me in various ways, some of which would be considered EOC. My parents paid for my (first and only) car. When I started my fully-funded MD/Ph.D program in a high cost of living area, they bought a one-bedroom apartment for me. After getting married to my wife (who works), they no longer pay for my car maintenance or my flights to visit them, but my wife and I continue to reap both tangible and intangible benefits of owning rather than renting our primary residence.


How Many Medical Students Receive Economic Outpatient Care?

I am not alone among medical students in the U.S. in receiving EOC. AAMC’s Analysis in Brief in 2018 found that 51% of all first-year medical students were in the top quintile of household income (≥ $121,019 in 2016), and nearly half of the top quintile (24% of total) were in the top 5% (≥ $225,251 in 2016). I could not find data on household net worth of medical students, but given that 93% of the students in the top 5% household-income group have parents in an executive, managerial, or professional occupation (about 1 in 5 are physicians, according to the New York Times), their parents’ net worth would be (or should be) at least $1.5 million. One million dollars in 1996 would be $1.53 million in 2016. Thus, if Danko’s findings hold true (“there is nothing new under the sun”), about 25% of medical students today might receive EOC from their parents in their lifetime.

Hopefully, those of us who receive EOC will live like a resident for a while and prevent lifestyle creep in contrast to the EOC-recipients in The Millionaire Next Door. According to Danko and Stanley, children of affluent parents have only a one-in-five chance of becoming a multi-millionaire in their lifetime (compared to one-in-30 for an average child), but the odds are already higher for us in medicine.

One factor that would decrease our odds might be a sense of entitlement. The underlying psychology of it is why the two-thirds of adult children who receive cash gifts believe they “did it on [their] own.” Regardless of how much we earn and save and how well we invest, those who have received EOC should not believe that they accumulated wealth on their own. Even Bill Gates, Jeff Bezos, and Mark Zuckerburg did not become billionaires on their own, as their parents were instrumental in starting their companies. Gifts at timely points help us make better financial decisions than others, but we might never know what we did better and what its downstream consequences have been.


Expressing Gratitude

The best antidote to the poison of entitlement is gratitude. Common ways to give thanks range from social media posts to lavish gifts for parents. Our gratitude should also be evident in our financial plans through the generosity of time and money. For example, equity in my current apartment will be a significant part of a down payment or even a cash offer for my future home.

If I were to have the “I did it on my own” mindset, I would consider the equity to be my own savings and try to buy a house that would have been out of my price range without the equity. Instead of buying a house that costs five times the equity, what if I buy a house that is less expensive, thereby minimizing my mortgage? The additional savings would shorten or add flexibility to my journey toward financial independence.

When I become an attending physician, my parents will be in their 60s. If I spend increasingly more time with them as they get older because I can do what I want, when I want, with who I want—read Morgan Housel's The Psychology of Money—everyone will see my gratitude for how my parents and I “did it” together.

I'm serious about giving, because sharing with others is the best way to acknowledge that what I have is not my own. My financial plan includes a target amount that I want to give away before I die. I track my annual giving rate just as I track my saving rate. I hope to exceed my goal because my most selfish self would rather say, “I gave away X amount on my own” than say “I became financially independent on my own.”

One thing that I cannot control is how EOC has affected my appetite for career risk. Perhaps it has. Danko believes that EOC does not create an ideal environment for young entrepreneurs. I do not know whether receiving EOC early in my career (as opposed to after I start a new venture) would hinder me from getting into the “game”. I might have more to lose or become too accustomed to living comfortably. Nothing is wrong with building wealth and providing value to society by practicing medicine, but entrepreneurship creates outsized wealth and value.

financial gift economic outpatient care

But by “young”, I wonder if Danko meant 40. I find comfort in a study cited in an article that said, “The average entrepreneur is actually 40 years old when launching his or her first startup—and the average age of leaders of high-growth startups is 45 years old.” I have had a nagging desire to “build something”, and I am fine with not knowing what that is yet. I still have 10-15 years to build human, social, and economic capital, so I just want to put myself in a position where I will take the leap when I know.


Choosing Opportunities over Comfort

Despite the predictions about the Zoom and telemedicine era, where I live after medical school will matter. After living in three major cities, I agree with entrepreneur Paul Graham’s observation that every great city attracts ambitious people and sends a certain message. I could become an entrepreneur anywhere, but the odds would be higher if I live where people encourage one another to take risks with money, technology, or ideas.

I could offset the effect of EOC on my desire for financial comfort by choosing to live in a high cost of living area during my graduate medical education and for 10-15 years afterward. I would need to sacrifice other aspects of my life to save and give at the same time, i.e., smaller residence, less convenient neighborhood, older cars, and more working years. However, such sacrifices could be smaller than what I might sacrifice by trying to use geographic arbitrage.

This is my reflection on my parents’ economic gifts. You might have different uses for your parents’ support. By sharing my perspective, I'm encouraging us to leverage our EOC so that it becomes a blessing, not a curse.

I don't think anyone should regret receiving EOC. I do not. After all, it could eventually be the start of a trillion-dollar company.

Did you receive EOC when you were starting 0n your medical journey? Did it help you gain a financial footing? What's your take on giving EOC to your own children? Comment below!