Americans Are Bad at Finances

April 4, 2014
Jeff Brown, MD

Too many Americans don't understand the full costs for owning a car, live paycheck to paycheck (even physicians), and are overwhelmed by investment options.

—Bankrate.com reports that only 4 in 10 US households have an IRA, and half of those were rolled over from employer-mandated plans.

—For all of you dazzled by the headlines of the huge returns from (a few) hedge funds, know that 10% of them liquidated (failed) last year, according to Hedge Fund Research. Further, half of all hedge funds have closed in the last 5 years. No wonder they won’t let you invest without signing a document testifying that your net worth is large enough to absorb a complete loss.

—We know that buying a car is expensive, but we usually think solely of its price, but it turns out the total cost of ownership is far greater than all but the most obsessive record keepers among us realize.

According to AAA, if you drive an average sedan about 15,000 miles per year, your fuel, maintenance, insurance, registration, and finance charges will average about $9,000 per year. An SUV will cost about $12,000. And if you are one of many aspirational docs with luxury rides, the bill can easily double that.

Hopefully you have managed to find a way to write some of that off on your taxes as an “ordinary and necessary” business expense. Bus, anyone?

—It is telling that in this period of enforced EMR/EHR conversions, rapid tech changes, failed software companies, and botched conversions, about a third of all such purchases are replacements. That hikes costs by another third, which is goes under the radar.

Many reports tell us EMR conversions are usually way over budget with proposed cost savings in operations proving illusory, and, even worse, computerization in its current form is slowing with our patient-oriented workflow. It’s another attack on our bottom lines and nervous systems. What’s your experience?

—Speaking of which, over three-quarters of Americans report they are living paycheck to paycheck, according to CNN. This, unfortunately, includes some docs: young ones struggling with educational debt, and mid-career docs dealing with the slippery slope of changing medical economics while educating their kids and trying to save for retirement.

—And another major economic cloud on the horizon is that workers’ contributions to health insurance premiums in the last 10 years alone have increased over 100%, per the Kaiser Family Foundation. You don’t have to be Nostradamus to realize that there isn’t much stretch left in our current methods of financing healthcare. Any better ideas out there?

—We could start the overdue change(s) to rationalize the unnecessary costs of healthcare ourselves. For instance, PPG Consulting states that 40% of patients seen in a day probably do not need to be seen that day. Better new-patient education and easier online or phone access to advice nurses are a start, especially if such things were adequately compensated at a lower cost than face-to-face doctor visits.

If business and political leaders don’t take our advice about how to improve the cost-effective delivery of healthcare, then we should begin to act unilaterally. We’re the ones who abrogated our responsibility to oversee the process in the first place, both individually and collectively, as I have stated many times before. And our alleged leaders have been ineffective in this debate in the marketplace. Do you agree?

—Lastly, there are an estimated 25,000 investment options among mutual funds and ETFs alone. And too many choices are both a trap to waste time and money as well as an excuse to delay starting your overdue IRA or 401(k) program.

You could get a knowledgeable and objective (read expensive, if helpful) advisor, or just pick a broadly diversified, low-cost (below 1%) index fund and sleep better. Vanguard, Fidelity and Schwab, for instance, all have such easy choices. Just call their 800 number and ask.

Cheers.