The Power of Personal Finance Education: Helping Family

By: Varun Verma, MD

Published: Oct 23, 2023

📂 Physician Perspectives

Written for:

✅ Medical Students

✅ Residents and Fellows

✅ Early Career Physicians

✅ Mid Career Physicians

✅ Established Professionals

Personal finance education is a crucial aspect of our lives that often goes overlooked - it is the process of learning about money and how to manage it effectively. It includes topics such as budgeting, saving, investing, and debt management. Financial literacy is important for everyone, regardless of age or income level. If you have a good understanding of personal finance, you can be a valuable resource for your relatives and loved ones. You can help them to make sound financial decisions, avoid common financial mistakes, and achieve their financial goals.

Here is how you may be of service to others:

Share Knowledge About Financial Products

In my experience it is shocking how many people aren’t familiar with FDIC-insured high yield accounts that earn around 4-5% interest annually (some popular ones are Ally, Amex savings, Marcus by Goldman Sachs, Sofi, Wealthfront). Sadly many still have their cash held at brick and mortar banks paying 0.01%-0.05% interest. Another safe option for savings is buying government securities at TreasuryDirect.gov (treasury bills, notes and bonds). On the credit card front there are a few 2%-2.5% cash back no-fee credit cards that don’t require you to jump through hoops on spending requirements (e.g. Wells Fargo Active Cash® Card and the Alliant Visa® Signature Credit Card are two of my favorites for personal cards, and the American Express Blue Business Cash™ for a business card).

Help Them To Create A Budget 

A budget is a plan for how to spend your money. It can help you to track your income and expenses, and to make sure that you are not spending more money than you earn. Teach them about the importance of saving money. Saving money is important for a variety of reasons, such as reaching financial goals, covering unexpected expenses, and retiring comfortably. You can help your loved ones to set savings goals and to develop a savings plan. 

Help Them To Manage Their Debt 

Debt can be a burden, but it can also be a tool to help you achieve your financial goals. If you have a good understanding of debt management, you can help your loved ones to use debt responsibly and to reduce their debt burden. Many people struggle with credit card debt, and if they choose to own a home will likely have a mortgage. A large number of medical students graduate with six figures of student loan debt and choosing the correct repayment plan is imperative. You may or not qualify for programs like public service loan forgiveness.

Educate Them About Retirement Planning

Help them navigate retirement funding options, such as Social Security, pensions, and retirement accounts, to ensure a comfortable and secure retirement. For example- it is important to stay on top of required minimum distributions (RMDs) which are the minimum amounts you must withdraw from your retirement accounts each year. You generally must start taking withdrawals from your traditional IRA, SEP IRA, SIMPLE IRA, and retirement plan accounts when you reach age 72 (73 if you reach age 72 after Dec. 31, 2022). Uncle Sam wants to get paid so you’re forced to take distributions yearly and then pay tax on that income. However, there are no RMDs from Roth accounts because you’ve already paid tax on that money. Everyone should be educated about the 4% rule, a common rule of thumb: You add up all of your investments, and withdraw 4% of that total each year (in subsequent years after the first year you may give yourself ‘a raise’ and adjust for inflation if needed). Note - this doesn’t account for taxes or investment fees and generally the rule applies to a hypothetical portfolio invested 50% in stocks and 50% in bonds

Analyze Their Portfolio and Fees

Provide insights into safe and suitable investment strategies to help their savings grow steadily and help them assess the feeds they’re being charged. Recently I joined two relatives on phone calls with financial advisors at two very well known large brokerages. In the first case, the asset allocation was completely inappropriate. There had been a complete failure to create a sound financial plan by taking into account assets held in other accounts separate from the IRA account at that institution. The financial advisor had created their recommendations yet completely neglected the fact that this relative was still working over the age of 70, had six-figures sitting in cash in a checking account, and had another employer sponsored 401k account at their employer sponsored plan. In the second call it was revealed that another relative had been placed in an actively managed fund with 1% assets under management (AUM) fees which chipped away at their hard earned nest egg. When I called out the financial advisor- they pointed me towards their in-house robo advisor solution where the fees were almost 1/10th of this and provided a very similar asset allocation between stocks and bonds. That was a no brainer to switch the account over! Sad however that my relative had paid four figure fees for five years by being in this inappropriate fund.

Remind Them Of The Importance Of Estate Planning

Everyone around us should be encouraged to pay attention in order to create or update wills, trusts, and advance healthcare directives to protect their assets and ensure their wishes are followed. At the very least you can remind them to log in to each and every account and update their beneficiaries. It is somewhat astounding how many people have no beneficiaries listed at all!

Help Them Understand Healthcare Costs

Assist in understanding healthcare expenses, insurance coverage, and Medicare/Medicaid options to minimize unexpected medical bills. Many physicians know how to provide medical care, but may not understand the intricacies of common types of insurance or terminology like deductibles, out of pocket maximums and coinsurances. The more educated you become about the business of medicine, the more you can help those around you with planning. 

Prevent Financial Scams

Educate vulnerable individuals about common financial scams and how to protect themselves from fraudulent activities. A few members of my family are always sending me screenshots of emails and text messages received that demand a payment or a fine of some kind or another, and my advice is always to call the direct number to their credit card or bank from from the back of a card or a statement (and ignore such messages).

Conclusion

The power of personal finance education extends well beyond managing one's own finances. It equips you with the knowledge and tools to provide invaluable support to your elderly relatives and make a positive impact on your family. By sharing your financial wisdom and advocating for financial literacy, you can help others lead more secure, prosperous lives. Remember, financial education is a gift that keeps on giving, benefitting both you and those around you for generations to come.

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