Why Physicians Need to Deal with Debt

Posted on July 15, 2024 by Dr. David Edward Marcinko MBA MEd CMP™

Understanding the Impending Retirement-Planning Crisis

[By Somnath Basu PhD, MBA]

A serious retirement-planning crisis is looming in the US with many Baby Boomer physicians, and others, having already spent a portion of their nest egg and undermining any hope for a comfortable lifestyle unless they continue to work. Notwithstanding medical professionals, look no further than an annual “retirement confidence” survey conducted by the Employee Benefit Research Institute and Mathew Greenwald & Associates in each of the past 17 years. Nearly two in five of working Americans responding to the latest survey indicated that they have taken no action in the face of reductions in their employer-provided retirement benefits.

Consumption Equals Happiness?

The population is constantly told that consumption equals happiness. At the same time they are not being asked to understand about the implications of borrowing to fund for such consumption. Before we can expect to effect a change in the ensuing pattern of a vicious cycle, the population mass must have a clear understanding of the difference between needs (e.g., retiring with peace of mind) and desires (e.g., cruises or living the high life).

Negative Savings Rate

When savings first dipped into negative territory during the Great Depression in 1932 and 1933, people didn’t have enough to eat, whereas there has been no such urgency to raid nest eggs since the repeat of this performance in 2005 when the rate fell to minus 0.5 percent. Our grandparents were shining stars in the way they worked hard to build this country’s infrastructure and manufacturing sector, saved every red cent they could get their hands on and created affluence on a mass scale. Today we’re able to enjoy the fruit of their labor. But, somehow their values were lost on future generations.

Changing American Culture

Many of the nation’s top engineers and scientists now hail from China, India and other Asian countries as American culture has undergone a dramatic change to the point where jocks and cheerleaders are more valued than computer geeks and science nerds in our schools. We inherited so much affluence that it made us lazy as a society. The seeds of our destruction have been sown, but it’s up to our politicians, educators and other leaders, including financial advisors, to help reverse this disturbing pattern before it’s too late.

Many people fall into the trap of rushing through dinner and unwinding in front of the TV where a big part of the problem lies in slick and subtle, and hard to resist, primetime advertising and marketing messages (prime time for subtle messages) that seduce viewers into purchasing luxury cars or flying to far-flung resorts where they can sip umbrella-clad cocktails alongside affluent vacationers.

Americans in Debt

A recent wave of foreclosures has put Americans deeper in debt, with the sub-prime crisis exposing despicable predatory lending practices. But, research has shown the wreckage also could be found strewn across in the mid-prime and prime markets as middle-class borrowers struggled to pay adjustable rate mortgages. High hopes have been pinned on the stock market helping people crawl out from this crisis just like when the real estate market had softened the blow when the tech-bubble burst at the turn of this century. So far, this has happened, to an extent. But, if the stock market starts reeling again, then it will spell even bigger trouble. Add to this the international trade imbalance, which implies foreign governmental funding of our conspicuous consumption, and which comes with high interest rates that need to be paid to the lenders, again to such countries as China, India and other emerging economies, and a bigger, worse picture emerges.

Personal Bankruptcies

Personal bankruptcies have an even more devastating effect on an individual’s ability to plan for the future, particularly since the laws pertaining to this area were toughened to a point where reckless spenders will need to muster fiscal and financial discipline as never before. The doomsday scenario is that children now run the risk of inheriting debt instead of wealth, and it’s unconscionable to think future generations would have a standard of living that’s worse than their parents or grandparents.

Assessment

The true grit associated with being an American is to rise up in the face of adversity – a frontier spirit that drew me this remarkable country. We’ve weathered numerous storms and can do it again. But, it requires a serious commitment to stopping mindless consumption of goods and services, as well as understanding there’s a difference between basic needs and pie-in-the-sky desires.

NOTE: Dr. Somnath Basu is a Professor of Finance at California Lutheran University and the Director of its California Institute of Finance. He is also the creator of the innovative AgeBander technology www.agebander.com for planning retirement needs.

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

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To Save or To Spend?

Posted on September 6, 2010 by Dr. David Edward Marcinko MBA MEd CMP™

Understanding the Decision

By Somnath Basu PhD, MBA

Should we save or spend? What’s good for me and my family? Is the time right for us to be buoyant and optimistic about the future? How do we decide what fraction of our income to spend and how much to save? Isn’t spending a good thing for the economy as we are constantly being reminded about? If we do not spend now, how are we going to feel about all these unfulfilled wants and needs that we have especially when we see others around us fulfilling? How much should I spend for gifts during this holiday season – is that not a good idea to bring cheer to my family? It is a very perplexing set of questions that constantly sway our mind as we try to grapple with what we feel should otherwise be moderately simple decisions. In arriving at these seemingly easy decisions, consumers are facing some of the toughest issues in their everyday lives. It may be useful to dig a bit deeper into the issues related to spending and saving decisions so that we may understand a bit of their complexities and make prudent choices whose outcomes will clearly validate our reasons for doing so.

The Save or Spend Decision

If the decision to save or spend is problematic, it is because it is neither simple nor anything new. We have coped with these same decisions through many generations, and more. The understanding we have collectively arrived at is, however, worth visiting. When we spend, we receive immediate gratification. This “feel good” feeling is so good that we are willing to sacrifice a lot in order to attain this feeling. Saving, on the other hand, is bereft of any such immediate good feeling. The only good feeling that can accrue to us is that we have this “felt’ promise to ourselves that a moment in the future will feel better than both the loss of satisfaction from immediate gratification of wants and the hurt of having unsatisfied wants. Alternately, we may want to save because we feel threatened that a future situation may arise that may lead to more misery tomorrow than the joy gained today. Thus, the main question in trying to answer whether to save or not is whether it is a promise or a foreboding about the future.

Attitudinal Sea Change

Over the last 25 years, our attitude towards spending has undergone a sea change. Even until the early 1980s we were saving in double digits as a nation. Since then, we have slowly moved away from this psyche and have adapted our lifestyles towards spending and consumption on a scale we have never experienced before, historically. By 2006, we were actually spending about one percent more than what we were earning. This change was stimulated by many factors including the plentiful inflow of cheap products from China, a steady rise in income, a considerable increase in the promotion of mass consumption through enticing advertisements in practically all media, the access to cheap credit sources, increasing house prices and the accompanying ability to borrow from the increase in its equity value, etc. Above all else, this shift from saving to spending was overwhelmingly reinforced by the feeling of empowerment in being able to command goods and services for consumption and the enjoyment from the increase in our standards of living that came from our new found affluence. Whereas every generation before us (baby boomers) had sought to leave more for their kids than what they themselves inherited, we reasoned with ourselves that educating our children was sufficient for them to look after themselves. This attitude allowed us also to spend and consume more not only without guilt, but also with pleasure. More so than ever, we got addicted to spending. Nothing felt better than spending.

The Flash Crash of 2008-09

Then came the great recession of 2008-09! The economy plunged, companies laid off workers by the thousands, people who had bought homes even if they could not afford it, on the promise that house prices would never go down, lost their homes. Moreover, the cheap Chinese goods we got used to were being produced by our own national companies so that the economic rebound was now being hailed as a jobless recovery. We had outsourced away all we had for some corporate bottom line and had impoverished ourselves in the process. Only now, we had no savings for the rainy day that had befallen us.

Americans Saving Again

Perhaps one of the more pleasant surprises from this recession is that we turned the clock around on saving and in the short span of two or three years we have our savings level back at five percent. Why did it happen this way in spite of our government encouraging us to spend our way out of this recession? Primarily, this change has come about from the possibility of losing our jobs or enduring deep cuts in our incomes. This fear today is more real than ever before and it seems to have taught us a “savings” lesson that we have all learned. When deciding on whether and how much to spend, we should take absolutely no chances in first putting away a small nest egg for a rainy day or “emergency” fund, in more technical terms. It is imperative that we defend our families in the event of losses in job and income so that we can bear out whatever future storms come by our way. It is only after we have done so should we consider spending. A six-month contingency fund [even more for medical professionals, according to ME-P Editor Dr. David E. Marcinko] should be perhaps the most staple item in our household budget. It is heartening to see the resiliency that runs through our nation’s citizens as we collectively undo our habit of reckless spending.

Assessment

Once we have our emergency nest egg in place, we should consider our spending pleasure. Going “cold turkey” on spending is not advisable either; maybe a gradual weaning away from this compelling habit. Ask yourselves before you spend whether it is a “need” or a “want”. Healthy food and holiday cheer for the family, basic transportation expenses and healthcare are needs. Starbucks coffee is a want. As we prudently spend on needs and wean away from wants we also save. And saving is not only for our future “feel good” consumption. It is also for the immensely gratifying feeling that we will leave something for our children, through whom we will live in the future.

NOTE: Dr. Somnath Basu is a Professor of Finance at California Lutheran University and the Director of its California Institute of Finance. He is also the creator of the innovative AgeBander technology www.agebander.com for planning retirement needs.

Conclusion

And so, your thoughts and comments on this ME-P are appreciated. Is this portrayal accurate or even applicable to medical professionals?  Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

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Practice Management: http://www.springerpub.com/prod.aspx?prod_id=23759

Physician Financial Planning: http://www.jbpub.com/catalog/0763745790

Medical Risk Management: http://www.jbpub.com/catalog/9780763733421

Healthcare Organizations: www.HealthcareFinancials.com

Physician Advisors: www.CertifiedMedicalPlanner.com

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