By Francis Bayes, Medical Student
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.
But by “young”, I wonder if Danko meant 40. I find comfort in a study cited in an Inc.com 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!
Very nicely written post. I received minimal EOC (things like paid dinners with parents etc) but nothing in terms of tuition or otherwise. It certainly played a role in the development of my financial mindset, both in a positive and negative way. I think overall though it gave me a good sense of responsibility and motivation through my studies and now career. But I don’t think providing EOC totally negates that as your experience shows! We plan to provide some level of EOC for our kids but also they will have to take on financial commitments themselves. We are figuring that balance out but luckily we have time since our kids are still toddlers!
Thank you for your kind words. I’m thankful that my parents have been intentional with how they’ve supported me. I’m not sure if they planned on helping me since I was a toddler, but they were big savers, which eventually gave them many options when I entered my program.
Thanks for this post on a fascinating and important topic.
I grew up poor and received no EOC. I’m partly motivated to give my kids a better life than I had. But I don’t want to spoil them either.
I do want to foster independence and have them stand on their own feet. But maybe it is too much to expect 23 year-olds to cover all expenses now?
I’m seeing a lot of college grads return home after college.
How long should we cover their expenses? Does it need to all stop at age 18? or when they graduate college? Or get married?
Is a cell phone a need or a want? What about WiFi?
Many of my colleagues find themselves continuing health insurance for their kids until age 26 because that’s legally allowable now. But because we can, does that mean we should?
I don’t know the answers to all these questions. My kids are still at home, but I will be facing these questions soon.
I grew up in a cultural background in which adult children often live with their parents until they marry even if they work, so I have always thought of “covering their expenses” as context-dependent. Even in the US, I was jealous of friends who could share their utilities bill with their parents. I think covering such expenses might not cost much to the parents but could mean a lot for the children. Also, compared to the size and type of EOC that is discussed in The Millionaire Next Door and I myself have received, I think the “gift” of paying for such expenses would have relatively insignificant effect on the financial habits and mindset of adult children.
Good luck. Let us know when you figure out the right answers. Probably varies by family and maybe even by kid.
There is nothing wrong with providing for your kids. Ours are quite independent and we do not support them now. Still, we sleep better knowing we can help financially if they were to need it. They are going to get whatever we have left at death, and we would rather limit the amount that goes to the government. So we do annual exclusion gifts, which the kids tuck into savings.
We are contemplating bigger gifts to get money out of our estates. It is taking some negotiating to get them to accept.
A huge part of the reason my parents have given me EOC is for tax purposes. Not having to stress too much about finances during medical school has been a huge privilege. Having received help when I needed it, I am hoping that my parents will now treat themselves more.
I have not seen EOC hurt people. I have only seen it help. I attended an elite public school for undergrad and then attended medical school.
This is not crazy talk: the kids who were financially supported the best performed the best (from what I could see).
This is just boomer-bait for selfish boomer who don’t want to help their kids. My patent could have helped me, but instead my mom wanted a horse and my dad a BMW. Not gunna lie: I still resent them for it.
This may be a unpopular opinion: I really don’t think it’s possible to spoil your kids. They are going to achieve or not achieve. That’s out of your hands. But if you’re a doctor and you make your teenage daughter drive a broken down Nissan, you’re just trying to impress people who don’t care. Shame on you people for risking your children’s live to make blog posts! Woe unto you prideful humblebraggers!!!
The only people who are worse are the “I’m not leaving my kids any wealth so they work hard. “
Boomers- stop being selfish and help your kids.
I wonder if there is much data in this topic.
From my view… significant financial support for your kids may increase their likelihood of a high income. However, it will also increase their chances of high spending.
The kids may have a hard time accumulating wealth except with an income that can overcome.
The Millionaire Next Door might not have been the most rigorous survey, but it has provided a unique perspective with both quantitative and qualitative data rather than with anecdotes. The millionaires in the study weren’t necessarily against giving their children financial support. In fact, if I remember correctly, many of them had estate planning in place and were conscientious about helping their children while alive or after death.
I agree with both Bigly doctors that people tend to believe that the way they’ve been raised and found success is the only way for their children and and that such actions might not be prudent.
Thanks for sharing your point of view. Obviously, I mostly disagree with it.
1. Stop feeling guilty and apologizing if you were fortunate enough to be born into a family that was able to afford college or med school for you. Count your blessings! Make the most of the opportunities that were given to you. “Realize that to whom much is given that much is required.”
2. Stop patting yourself on the back about how “tough” you are as an individual/parent in regards to not helping your kids or your family. “Nobody helped me and therefore I won’t help my kids. It made me a better person.” Really?
3. As a parent, you actually don’t know how things will turn out with your kids. Even within families, kids are individuals and usually are different. What worked with one kid may not work with your other ones. All you can do as a parent is try to evaluate and assess every situation. Unfortunately, we cannot predict how things will turn out with our kids, who they will marry or how they will respect money. Nobody has all of the answers. There is nothing wrong with helping your kids or family!
4. Don’t make the call so early in regards to leaving/not leaving your kids an inheritance. Every situation is different as every child is different. Things can change!
5. Don’t miss a chance in life to help others. There are lots of ways.
6. What a wonderful problem to have…..the ability to leave your kids and family something…..the ability to help others…
Those are good “rules of thumb.” I certainly didn’t mean to apologize or express guilt (i.e., my last sentence). I am thankful that my parents provided support knowing who I am as an individual and understanding my circumstance. Context, context, context.
Love your 4th point. Maximizing flexibility in estate planning is a big issue.
This is a very edifying post in my opinion and an interesting critique of EOC, as I understand it from reading The Millionaire Next Door. Growing up modestly as the youngest of eight children and graduating from HS in 1986, my EOC was liability insurance on the car (we all bought our own junkers) during college, homemade care packages, and a few car repairs. and other small odds and ends. We all worked to put ourselves through school or got jobs out of high school. My deceased parents just didn’t have the resources to do more. The older siblings helped the younger siblings as resources allowed and now, decades later, the younger siblings are helping them and their children, and we all helped Mom and Dad financially according to our resources. Some help is tangible, other gifts are time and expertise. So there’s a degree of interdependence.
I personally think a little financial struggle, or at least, strict financial accounting, is good for character and developing resourcefulness. That being said, my parents would have loved to help us more financially and there were times when such help would have been welcomed, such as as decent health insurance. It would have also removed the distracting stress of wondering how necessary items were going to be paid for, allowing us to focus on our studies more.
It sounds like the writer’s parents helped with good results. I’m happy for folks that have an experience like Francis Bayes, who is aware of their good fortune in life and expresses gratitude and detailed appreciation, along with a desire to share.
Thank you NW for sharing your experience and for your kind words. My parents also received minimal financial support from their parents, and I think their experience shaped how they decided on providing me with financial support. Not having had a “distracting” level of financial stress has been a huge blessing during medical school, while a modest level that I’d had before marriage helped build financial discipline. As I wrote in another comment, because I received help when I most needed it, I’ve been all the more eager to encourage my parents to treat themselves.
I’ve seen EOC both spoil people and make people wither and I’ve also seen EOC not have any negative effects.
I think how much of an effect EOC has completely depends on the person’s temperament, maturity, and how they feel opportunity and life in general.
Personally, I’ve gotten some EOC for undergrad (more so for grad school), and my first car. I’ve paid my parents back since then, but am planning to pay them back many, many multiple times the EOC given to me for example. Even though I’m not obligated to give back I treat my EOC as a loan as opposed to something I’m entitled to for example. But approach can differ from person to person.
Not sure just paying for an education is what the authors of the millionaire next door meant by economic outpatient care. I think it was more referring to the wealthy parents paying for the lifestyles of those in their 30s, 40s, and 50s.
My father had help through college and was married prior to medical school. His parents were middle class through the depression (25 cents per hour) . He attended medical school and residency via the United States Navy. Residency in OBGYN. Went into private practice 1967. Built a surgery center and hospital with physician partners. EOC 4 children through college, 2 to medical school, 1 to PT school. I was EOC through medical school, zero debt and very nice lifestyle. We all worked through high school and college. I got 6 different paychecks some months through residency (moonlighting for many different sites). Currently, I EOC 3 daughters through medical school and helped them via 529 plans that are still full, post education ( great return in the market). Thus, have basically fully funded my grandchildren’s education. Along with new 529 developed by my daughter to secure financial support beyond my EOC. The gift/opportunity is being passed on generation after generation. So far, no one has abused the gift/opportunity. Everyone has shown good fiscal responsibility, despite the EOC. A few mistakes along the way, but working hard to train them for their future. I would like to thank my mother, father and grandparents for the opportunity and success of myself and their granddaughters. Dad is 89 and mom 90. I hope my success and that of my daughters has rewarded all of them for their hard work and gift to future generations. I am happy to be in the position to do the same for my legacy.
Financially, my father led by example and discussed finances openly in front of me as a child. I remember his decisions, both successful and not. I was in training my whole life. Still have open discussions (more training), we don’t always agree, but I listen.
EOC has worked well in my family. But, I agree, every child is different. Success is measured in many ways beyond economics. Gotta smell the flowers on the one way road. I don’t think of EOC as money, I think of it as opportunity.
Again, I’m not sure EOC refers to paying for school.
Beyond, education . Selling my 2 year old cars for 2/3 blue book to children. Keeping them on family plan cellphones, medical insurance till 26. Family vacations paid for. Childcare for free. The EOC decreases the Estate to avoid Biden’s death taxes! Would prefer spending that 40% on myself or family vs giving to government. There are ways of giving value with out giving direct money. Use of boats and other properties. Off setting their costs , so they can build a portfolio for their family, delaying or cancelling out death taxes. EOC clearly plays into estate planning done early! I can enjoy doing it while I am alive or before my wife’s next husband spends it all?
For sure there are financial advantages when the generations work together. The big question is whether or not it actually hurts the kids. The Millionaire Next Door provides some evidence that it does. But the jury is still out IMHO.
I’m heavily invested in health care and education for my sons as my parents were for me and their parents were for them. My ability to support them with excellent health insurance to obtain superior health care in young adulthood probably saved one child’s life. You help where you can and try to live your values.
It’s clear that your parents didn’t just give you money but instilled in you the rationale behind the use of money, as a tool for the betterment of yourself and your family. I would say that in the same spirit as Stanley, EOC is a derogative term used to disparage the thoughtless money thrown at irresponsible children. It seems, perhaps, that two things matter when gifting (or receiving) money: the spirit in which it is given (or intended) and the characteristics of the person who receives it.
EOC is such a highly complex issue in our family. Our kids are in their 20’s. Our net worth is extremely high. When we were young, we had support from family to get a top education and a bit more, but not all that much. We saved and invested, developed multiple income streams, and started a successful business. Our own kids obviously grew up in the same household environment, but they are so, so different with respect to things financial.
We have a daughter who is wonderfully successful with a very high income. She is quite frugal and has a net worth in the low 7 figures. She invests in tax deferred and taxable accounts on autopilot every month, and her cash savings are also in the generous 6 figure range.
And then there is our youngest son. He is a hedonist who spends money with abandon. We have worked very hard to help him understand the need to live within one’s means. But his situation is a conundrum. He graduated from college last year, and his solution to his financial struggles and debts has not been to control his lifestyle or his spending, but rather to work like crazy to have a really high income. He has worked extremely hard and has built up his income to over 300k, quite impressive. But his spending remains crazy high. Yes, he is paying down his credit card debts month by month. But it makes me so worried and sad to observe their ridiculous choices. He is newly married and they leased a Mercedes and his wife recently spent $1000 in a day at the spa. He just wants to “make her happy.”
We don’t know what to do as far as our estate plan. We want to share our success only if the funds would be managed responsibly. Our values line up well with our daughter, but not at all with our son.
The plan doesn’t have to be the same for both. It can also be changed as it goes along. But it sounds to me like a spendthrift trust may be involved.