Why are so many veterinary grads financially illiterate?
Darby Affeldt, DVM, RICP
The future veterinarians I talk to are sad and scared about their financial future in their new career. With the right planning and financial education, they shouldnt be. Whos going to join me in fighting this fight?
Victoria Kotlyarchuk/stock.adobe.comEvery spring I sit down with graduating veterinary students to offer them each a complimentary, no-obligation hour of one-on-one professional and personal financial guidance and advice. Since I started these consultations in 2015, the demand has exploded. I give away nearly 700 hours of advice annually at veterinary schools and over the phone when in-person visits aren't possible.
Not surprisingly, the more than 800 new grads I've counseled show a wide spectrum of financial literacy. I ask students to rate their own financial literacy on a scale of 1 to 10-1 is Snoopy and 10 is Warren Buffett. The average is 3. It turns out that where they go to school makes a big difference. Some claim they haven't ever been offered a financial lecture; others had access to guest lectures on financial topics throughout their four years. Some have never even heard of using a monthly budget; others had budgets so detailed they'd counted out how many tubes of toothpaste they might go through in a year.
We cover the financial basics: Do they have a job offer, did they negotiate compensation (they should) and what will their take-home pay be? I'm often surprised at how many veterinarians have divided their gross salary by 12 months, forgetting they need to pay taxes. Others are dumbfounded to learn that the state where they're moving takes out income tax. Roughly one-third have never been taught-by anyone-how to estimate take-home pay (there are many paycheck calculators on the internet).
We cover the how, why, when and where of saving up emergency cash reserves. Some work during veterinary school and scrape together an impressive level of savings; others are running on fumes. Some eked out a meager existence in school to keep their loans down; others insisted on living alone or supporting a lifestyle they felt “more comfortable with”-without grasping how tough it would be to pay off the excess loans needed to keep that up.
We consider each and every surplus dollar, if any, for the next six months so that when the student loan grace period ends, hopefully they'll have credit cards paid off or a decent-sized emergency reserve built up. (Those going into internships scarcely have enough for three meals a day, so saving emergency reserves isn't a reality.)
Good debt, bad debt
Some veterinary graduates have credit card debt, but (incredibly) many of them don't seem to understand that this is different debt than their student debt and should be paid off more aggressively than student or car loans. Again, the variance in this knowledge is wide. Some students are aware that credit card debt is bad debt, but they couldn't avoid it, so we plan out how to get rid of it as quickly as possible. Our society is failing our kids if they get all the way through graduate school and don't understand how carrying credit card debt can be an expensive financial mistake.
Question No. 1? Always student debt
Naturally, student debt is the topic most want to discuss: how to manage it, how to choose a repayment program and how practice ownership or marriage can affect those programs. Because I'm not a student loan expert, I refer graduates to experts, but we get the foundational conversation started. Students amass this giant heap of debt yet are given few resources to help them understand it. No two plans can be the same, because financial planning isn't herd health, yet many say they've been told to just pay the minimum and kick as much of their student debt down the road as they can in preparation for loan forgiveness.
But not everyone should go for loan forgiveness. The choice depends on many other factors that must be considered as well. On the other hand, not everyone should try to pay off their loans, because some balances start so high that it won't be feasible. But there is no rule of thumb, and whether to try to pay off loans will also come from future information that cannot be known at graduation: income, marriage, retirement contributions, spending, burnout, other financial obligations, practice or home ownership, babies, part-time work, personal tolerances, belief systems, savings discipline … I could go on. Student debt repayment is not a “set it and forget it” decision. It needs to be monitored annually, because life evolves and unknowns at the time of graduation emerge over time.
If loan forgiveness is the plan and taxes will be due on the forgiven balances 20 to 25 years later, how does a veterinarian start saving to pay that tax? A savings account won't keep pace with inflation. Hundreds have told me they were told to start an investment account, but most don't have the first clue how to do it. One possibility would be a taxable nonqualified account, but they need to consider their own financial behavior, market volatility, rebalancing and repositioning holdings and how to mitigate the taxation of such an account. Mistakes are costly, and perhaps these veterinarians should consider the advice they give to clients-to find a professional to help them “diagnose, build a plan and treat” their financial life.
We are failing our veterinary students if they leave school without a debt management plan specific to them created by a student loan expert collaborating with a trained financial advisor.
What else concerns graduates
Once the debt conversation has been navigated, we then turn to risk management and insurances. We discuss what to look for, what to look out for, what is and isn't necessary, and how hard it is to understand all the fine print. (Insurance policy language is akin to a veterinarian handing a pet owner a copy of JAVMA and telling them to read up on their dog's Cushing's diagnosis.)
Many understand how important income protection is (long-term disability insurance), yet others have never once considered protecting their income. Statistics from the Social Security Administration show that one in four people will become disabled for an average time span of 2.5 years. Would it be a problem if income stopped for over two years? Not all policies are equal or have fine print that is highly favorable for doctors, so it's critical that students be taught all of their disability options, as well as the pros and the cons of each.
If they're married or have kids, we discuss the importance of life insurance. Then we cover deductibles and insurance for cars, homeowners and renters, health, liability and umbrella coverage.
Lastly, if we have time or their attention span can accommodate more, we discuss retirement plan options, buying a house, saving for kids' college or preparing to own a practice. I'm shocked at how most don't know what a Roth IRA is or what an employer retirement plan match is.
After hundreds of hours with these brilliant young doctors, I know for certain they desperately need professional help on a broad range of financial topics. The debt load is too great to simply open the doors and let people out of school with a farewell and a good-luck pat on the back.
Many believe that becoming a veterinarian is a terrible return on investment; I couldn't disagree more. From work with more than 1,200 new graduates and my other DVM clients, I have a plethora of data to prove that industry naysayers should reconsider. Some associate veterinarians earn annualized incomes of nearly $150,000, starting with a typical base of $90,000; the rest is production. Conversely, I have clients still earning the same $65,000 base they started with. I have many clients who paid off student debt quickly, while others spend any surplus income on the latest shiny toy. Why the differences? Much of it comes down to spending habits or discipline, but often it is a lack of understanding of financial principles because they either they aren't offered financial education in vet school or don't believe financial education will apply to their lives.
Graduating students shouldn't feel so hopeless and confused over their financial future on the eve of their graduation that they regret their decision to become veterinarians. And no veterinarian should feel there's nowhere to turn with their financial struggles. As my time allows, I'll continue to offer this complimentary guidance. And in the meantime, I pray that my experience will inspire others in this industry to step in, step up and bring our veterinary colleagues the resources they desperately need to start out on the right financial foot.
Editor's note: The author asked us to run this copy with this article: Financial Advisors do not provide specific tax/legal advice and this information should not be considered as such. You should always consult your tax/legal advisor regarding your own specific tax/legal situation. Darby is a registered representative and investment advisor representative of CRI Securities, LLC and Securian Financial Services, Inc. North Star Consultants, Inc., Insurance Products and Services| CRI Securities, LLC - Securities and Investments | Securian Financial Services, Inc. – Variable Products and Securities | North Star Resource Group offers securities and investment advisory services through CRI Securities, LLC and Securian Financial Services, Inc. Members FINRA/SIPC. | CRI Securities, LLC is affiliated with Securian Financial Services, Inc. and North Star Resource Group. North Star Resource Group is not affiliated with Securian Financial Services, Inc. North Star Resource Group is independently owned and operated. 2701 University Ave, SE | Minneapolis, MN 55414. 2817066/DOFU 11-2019
Darby Affeldt, DVM, RICP, is a financial advisor to veterinarians and other medical professionals at North Star Resource Group based in Seattle.