Hi there, and welcome to the FinancialPULSE, where financial education is made for residents, by residents.
We’re going to be learning about so many important topics, like personal finance, investing, loans, you name it. But before we dive into the deep end, let’s chat about why understanding why increasing our financial literacy as doctors is so valuable.
We’ve all heard the importance of saving and not spending money you don’t have. If you wanted that new CD that came out last week, you’d first have to save up enough allowance to buy it by picking up more chores around the house or working a few extra shifts of that newspaper delivery route. The concept was easy – you get money from the work you do, then you spend it on what you want.
For most of us going through our chosen career in medicine though, this isn’t how things play out. At least, not yet before we start working as full-fledged staff physicians. Undergraduate studies and medical school are expensive and, for the most part, none of us get paid to go to school. Instead, we usually end up covering our expenses of everyday life, as well as those big tuition fees, with borrowed money. And this can take many forms, maybe you got some money from a government student loan program, maybe you borrowed money from a major bank through a line of credit, or maybe you even just borrowed money from your parents or relatives. Whatever the case, by the time we’re residents, a majority of us end up being in a position where we owe a lot more money that we have in our pockets, namely because, well, we haven’t been making any money and we still have to pay our bills.
In fact, according to the Doctors of BC, the average student graduating from medical school has over $158,000 in debt, and it’s not uncommon for this number to reach over $200,000.1 This means that as a PGY-1, most of us have a negative net worth. And just as a quick aside, net worth is just a fancy way of saying, if I take all my possessions that are worth anything, which includes things like my car, my computer, or the money I have in my bank account, and subtract from that all the debt that I owe, what is that number? And again, with that high debt number, most of us will have a negative net worth, which simply means that at this point right now, we owe more money to other people than we actually have.
But that’s actually okay! The reason why banks and other lending agencies are fine with lending us a lot of money to complete our education is because they know that when we join the workforce, we will be able to pay back the money we owe and then some. And maybe it doesn’t feel like it right now when we earn a resident salary and still have to pay living expenses, but as we transition to working as staff physicians, the compensation really isn’t too shabby, especially when you compare the average salary of a physician in Canada coming in at $345,000, which almost 3 times higher than the combined median household income for couple families living in Canada.2,3
And all this brings me to the special situation we’re in as residents. We’ve spent most of our lives borrowing money to build our human capital, meaning our specialized skills and knowledge, and we’re gradually transitioning to the stage where we will very quickly have a positive net worth. But how do we handle this transition? Do we pay back all the money we owe as fast as we can? What if we want to buy a house? What if we have other dependents?
Wealth creation is a slow and steady process. It pays off to start early, but it doesn’t look the same for everyone. In the coming videos, we’ll show you how having a bit of financial literacy can help you really take control of your own financial situation, and how starting to slowly accumulate wealth early can end up making a big difference in the long run.
1 Facts – The Cost of Becoming a Doctor. Doctors of BC. Accessed on June 30, 2020. https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1110001201. https://www.doctorsofbc.ca/news/facts-cost-becoming-doctor#:~:text=How%20can%20we%20ease%20student%20debt%3F&text=At%20the%20University%20of%20British,in%20monthly%20student%20loan%20payments.
2 Canadian Institute for Health Information. Physicians in Canada, 2018. Ottawa, ON: CIHI; 2019. Accessed on June 30, 2020. https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1110001201. https://www.cihi.ca/sites/default/files/document/p...
3Statistics Canada. Table 11-10-0012-01 Distribution of total income by census family type and age of older partner, parent or individual. https://doi.org/10.25318/1110001201-eng. Accessed on June 30, 2020. https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1110001201