Medicine is at a crossroads, and the pressure on the modern physician has never been greater. While managing often-conflicting regulations, insurers, and patients, the modern physician also faces greater financial pressure than ever before. Whilst a generation before us went into practice and were afforded financial freedom, the many of us straddled with student loans, lower earning potential, and business metrics to evaluate performance. The emphasis has shifted away from quality of care towards quantity, despite numerous hospitals preaching quality of delivery as a mantra.
Not only does this mindset have to change, it must change radically. That change cannot commence years later, when physicians in the their 40’s and 50’s are continuing to pay deferred loans. This change must occur during medical school and residency training. How well we educate our young physicians on their financial future is missing in the professionalism component of our ACGME. Why are we not facilitating financial literacy for an entire generation of physicians?
I often have residents, fellows, and even senior faculty come and speak to me for financial advice. I have no formal financial background except that I had a set of immigrant parents who learned the rules and taught them to me. I have no products to advertise, and I definitely wouldn’t sell the arcane and inefficient products that advisors currently peddle to physicians. Financial stress adds to a long list of stressors that physicians already deal with. These stressors have long term consequences to the health, marriages, and well being of these physicians.
Below are three of the most-common topics I cover with the trainees:
1. TIME VALUE OF MONEY: One of the first things I teach the residents, if I can catch them early enough, is about the time value of money. While many intuitively understand that they need to save money few understand why. They often want to know which stocks are a home run and other such advice which is way outside my purview. I focus on the basics- are you paying off your highest interest private student loan first- as opposed to your Stafford? Are you contributing enough money to at least get the institutional match (free money)? Are you contributing at least some money to your pretax benefit plan?
2. UNDERSTANDING CONTRACTS: Every resident leaves training believing they got the best deal for their first attending physician position. This is a natural bias and it’s always great to feel positive about the position they are about to commence. But in every field, a certain percentage of residents are calling back within a year wondering whether they can come back. Much of this is contract management and being able to understand the implications of contracts. Understanding contract management starts with basic understanding of cash flows, gain sharing, vesting, and what “partnership” really means. Much of this is built on the foundation of financial literacy, and many of my friends and colleagues mine across multiple specialties have lost tremendous amounts of financial value in their practice endeavors due to faulty financial literacy. This further behooves residency training programs to accept the responsibility for their graduates’ financial futures.
3. UTILIZING PRETAX PLANS: While many argue that only a certain amount of pretax money is needed in the long term, it dosen’t mean residents shouldn’t start saving early and often. The reason is not merely the TVM stated in point # 1, but also the tax benefits of pretax plans (403b, 457), which lowers the tax burden of trainees. In addition to the mere savings aspect, understanding which plans within the benefit plans offer greater returns with lower expense ratios (i.e. less money out of your pocket) is great practice for the future of investment management.
We as physicians have done an excellent job training our physicians to be great clinicians, scientists, and thinkers. We have a graduated approach to clinical decision making with milestones for our trainees that allow them to graduate to practice independence. We wrongly assume however, that their graduated decision-making should extend to other parts of their lives, including making proper decisions about their financial futures. These poor assumptions, along with prolonged times to viable salaries and increased pressures alluded to earlier, will only increase the financial pressure on these physicians. It behooves us to encourage financial literacy both early and aggressively in the training process to better prepare our young physicians. It will not only make them healthier and wealthier- it will make them better physicians.
Arvind Chandrakantan, MD, MBA, FAAP is a practicing pediatric anesthesiologist in Houston, TX at Texas Children’s Hospital and Baylor College of Medicine. The views expected herein are his personal opinions and do not reflect any entities, professional and public societies, or the viewpoints of his employers.