I’m not really sure who is at fault, but, somewhere along the way, our educational system decided that teaching personal finance is unnecessary. We learn calculus, the rules of dodgeball, even sewing, but financial management is taboo. Then, all of a sudden, we head to undergrad and medical school and, before we know it, we’re in our late 20s or early 30s and financially illiterate.
A 2014 report on U.S. Physicians’ Financial Preparedness by the AMA revealed that 70% of young physicians said they felt only ‘somewhat knowledgeable’ or ‘not very knowledgeable’ in regards to their financial acumen. Only 5% said ‘very knowledgeable.’
The only reason I am fortunate enough to be in that 5% is that I’m a former investment banker who studied finance in undergrad. I decided to switch to medicine, and, when I met my classmates during my first year, I would frequently get asked basic questions such as the difference between a stock and a bond.
As I talked more and more to my classmates, I realized the problem is the complexity of what’s out there can be overwhelming. I decided to create simple lessons that medical students and young doctors needed to know in order to feel comfortable with the “non-debt” side of their finances. Over my last three years in medical school at Brown University leading these workshops, I have taught these basic principles with one goal in mind: learn the principles now so your career decisions aren’t based off money later.
In one of my examples, I introduce two friends of mine, Pete the Pediatrician and Nancy the Neurologist. The story behind these two are both wanted to become pediatricians, but Nancy was worried that she wouldn’t make enough money in pediatrics and switched to neurology. However, Pete learned basic investing techniques and started when he was 30, while Nancy learned later at 40. Here’s what the results look like:
I’ve taken the average salary per the Careers in Medicine website and assumed that both save 5% of their paycheck. That means that Nancy is saving more money each year and doing it for 30 years but still ends up with less than Pete, who started 10 years earlier and contributed 20 years fewer. If Pete is targeting $2.5 million at retirement at 75 years-old, he can spend that “extra” $11,000 each year as discretionary income. This, right here, is the importance of starting early and how it can impact the career you go into.
A Medscape survey performed in 2016 asked physicians if they feel fairly compensated. The lowest earning physicians are pediatricians at $220,853 on average. The highest earning are orthopedic surgeons at $443,000 on average. In the United States, this puts you between the 1st and 6th percentile as earners for a household. Yet, in nearly all specialties, about 50% say they do not feel fairly compensated. How can this be possible?
Most of my friends who graduated with me in undergrad are earning six figures. If you’re smart enough to get into medical school, you’re absolutely smart enough to land a high paying finance job (trust me). That means between the additional four years of medical school and three to seven years of training, you are losing close to $1 million in gross earnings. But maybe just as important is losing the years of learning to manage your own money.
Friends of mine in their early 20s who started earning money took five to ten years to learn how to invest and manage that money properly. When they turned 30, they were ready to invest properly and had an income to invest. If you’re a medical student and wait until you are earning money and then start to learn to manage it, it may take you five to ten years to feel comfortable. At that point, you may be 40 years old and late to the game, just like Nancy the Neurologist was, and feel that you aren’t compensated fairly because you are playing catch up.
It might seems counterintuitive, but the time to learn the basics of financial management is during medical school, when you don’t have any income. That way, you can hit residency running and know immediately how you want to manage your finances. And, most importantly, that residency can be chosen based on your interests, not finances.
Aashish Shah is a fourth-year medical student at the Alpert Medical School of Brown University and a former investment banker. His e-book, Ten Simple Finance Rules for the Medical Student and Young Physician, was released this year.