This is a synopsis of a research article authored by researchers at the University of Pennsylvania: Wharton school of Business and Perelman School of Medicine. Here is a link to the FULL ARTICLE.
The average medical student debt is expected to be $300,000 by 2024. This high debt burden puts young physicians at a unique disadvantage. Financial strain is associated with increased stress and burnout.
Medical students face some of their most significant financial questions in medical school and residency, including student loan decisions, incurring credit card debt, purchasing a residence or car, filing tax returns, investing and choosing retirement accounts. Providing financial education before students make significant financial decisions is critical.
Authors of this research article tested 1052 students at seven different medical schools using questions from the Vanguard Financial Literacy Test and FINRA Financial Literacy Quiz. The average score was 47% correct. From the questions most often answered incorrectly, researchers found that medical students would benefit from learning about the time value of money, student loans, asset classes, and asset allocation.
Financial literacy among U.S. medical students is low. This is concerning, because medical students occupy a unique niche with higher levels of educational debt. Medical schools and policy makers should consider and evaluate new methods to improve financial literacy among medical students.
Can you answer more than 47% of these questions correctly?
1. If interest rates rise, what will typically happen to bond prices?
A. Rise
B. Fall
C. Stay the same
D. No Relationship
2. Which of the following is true about a stock mutual fund vs. a single company’s stock?
A. Buying a stock mutual fund usually provides a safer return than a single company’s stock
B. Buying a single company’s stock usually provides a safer return than a stock mutual fund.
C. Don’t know
3. If a fund charges an expense ratio of 1%:
A. You will pay a one-time fee amounting to 1% of the number of shares held in the account.
B. Your fund investment’s returns will be reduced by 1% each year
C. Your fund investment is reduced by 1% at the time you buy the shares
D. You will pay a sales charge of 1% to a broker at the time you buy the shares
4. When you invest in a traditional 401(k), which is an employer’s retirement savings plan, your contributions are taxed:
A. When you withdraw them during retirement
B. Before you invest them
C. Once a year on or before April 15
D. When you reach age 65
E. Don’t know
5. Suppose you owe $1000 on your credit card and the interest rate you are charged is 20% per year, compounded annually. If you didn’t pay anything off, at this interest rate, how many years would it take for the amount you owe to double?
A. 2 years
B. Less than 5 years
C. 5 to 10 years
D. More than 10 years
E. Don’t know
6. If you invest in a 401(k) plan at work, are you eligible to contribute to an IRA?
- Yes
- No
- Don’t know
7. From 1926 to 2013, the average total return per year for the US stock market was:
A. 4% per year
B. 12% per year
C. 22% per year
D. 33% per year
E. Don’t know
8. Generally, a portfolio that has 80% of its assets invested in stocks would be best suited for:
A. An 18 year old using assets to pay for college over the next 4 years
B. A 35 year old investing for retirement
C. A 75 year old investing for income and capital preservation
D. None of the above
E. Don’t know
9. You owe $3000 on your credit card. You a pay a minimum amount of $30 each month. At an annual percentage rate of 12% (or 1% each month), how manty years would it take to eliminate your credit card debt if you made no additional new charges?
A. Less than 5 years
B. Between 5 and 10 years
C. Between 10 and 15 years
D. Never, you will continue to be in debt
E. Don’t know
10. Imagine that the interest rate on your savings account is 1% a year and inflation is 2% a year. After 1 one year, would the money in the account buy more than it does today, exactly the same, or less than today?
A. More
B. Same
C. Less
D. Don’t know
11. Which of the following is true about the student loan interest deduction?
A. It is limited to the lesser of $2500 or the amount of interest you actually paid
B. You can claim the deduction as long as you are a dependent.
C. The amount of deduction is subtracted from your total tax to arrive at the amount owed.
D. Your eligibility to take the deduction is not limited by your income.
E. Don’t know
12. If you only own US stocks in your investment portfolio, can you reduce your overall risk by adding international stocks?
A. Yes
B. No
C. Don’t know
Answers: 1-B, 2-A, 3-B, 4-A, 5-B, 6-A, 7-B, 8-B (although D could also be correct if they thought a 35 year old should be investing at least 85% in stocks according to the rule of 120, so ‘none of the above’ could be acceptable too), 9-D, 10-C, 11-A, 12-B