WCI #190: The Next Millionaire Next Door

This is the White Coat Investor Podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high income professionals stop doing dumb things with their money since 2011. Here's your host, Dr. Jim Dalle. This is White Coat Investor Podcast 190, the next millionaire next door. As a white coat, you have valuable knowledge. Various companies want that knowledge and they're willing to pay you for it. That's why we put together a list of recommendations for companies that pay you to take surveys. If you're looking for a profitable side gig for not too much effort, getting paid for surveys could be the perfect solution for you. You can make extra money, start a Solo 401 and use your medical knowledge to impact new products. One of the WCI columnists makes an extra $30,000 a year just doing these surveys. Sign up today. Use a fraction of your downtime to make extra cash. Go to whitecoatinvestor.com mdsurveys. You can do this and the White Coat Investor can help. All right, we're dropping this on Christmas Eve, so Merry Christmas. To those of you who celebrate Christmas, Happy Holidays and whatever holiday you celebrate. If you're in the US Your kids or you may have some time off due to the holidays and I hope you enjoy that. We're recording it, however, on December 3rd. There's a big difference between December 3rd and December 24th. I hope the big difference is not in the pandemic getting worse. I'm super excited about vaccines coming up. I may even have a vaccine by the time this drops, which I'm pretty excited about. But hopefully that will be a turning point as we start distributing these vaccines in this pandemic. In the meantime, hang in there. There's light at the end of the tunnel. The tunnel is probably longer than we think it is, but hang in there. Your job is going to get better over the next year. So if you're feeling burnt out on having to put pe, PE on every time you go see someone or worried about taking something home to your family, hang in there. It's going to be over soon. Let's do a quote of the day. This one's from Warren Buffett. He said the market is the most efficient mechanism anywhere in the world for transferring wealth from inpatient people to patient people. And I certainly agree with that. Patience is a requisite quality for a successful investor. If you have not yet heard, we have a conference coming up. We call it wcicon, but its official name is the Physician Wellness and financial literacy conference this year due to the pandemic, we're going to make it a virtual conference, but it's still live. It's going to be March 4th through 6th. And yes, everything's going to be recorded and you'll have access to it even if you can't see a given presentation. But these are, this is going to be an awesome conference. Part of the reason why is because it's virtual. Because it's virtual, we have the ability to do some things that we can't do in a live conference. Like, like put in 50% more content into the, into the conference. And so it's got tons more than any other conference we've ever had. I think it's going to qualify for 17 credit hours of CME and I think it's over 50 hours of content in this conference for less money than the last conference we had. You know, we don't have to buy overpriced hotel food and we don't have to fly all the speakers out to Salt Lake. The price definitely comes down somewhat and so it's been great to be able to put this together. If you want to register, the link is whitecoatinvestor.com conference. So check that out today if that's something you think you would like to have. It qualifies for cme. You can use your CME funds. If you're self employed, you can write it off as a business expense. It's going to be really good. All right, we got a special guest today. Let's get into the interview. Okay. Our special guest today on the White Coat Investor podcast is Dr. Sarah Stanley Fala. She has a PhD in industrial psychology, but that you probably know her best from the series of books that she and her father have been working on. Her book out most recently is the next Millionaire Next Door. Sarah, welcome to the White Coat Investor podcast.

Thanks for having me. I appreciate it.

So what was it like growing up as the daughter of Thomas Stanley?

Well, it was definitely a great childhood. If you have ever seen him speak or see him on old recordings of Oprah or anything like that, he was a lot of fun to be around. He was a great teacher. He was very much focused on making sure that we knew the value of hard work. I think that came from his background and he just, he really had a fun heart and showed that to his students and certainly to us as his kids as well.

Awesome. Well, I'm sorry for your loss. It was a loss to all of humanity, but probably largest to his family members.

Oh, yeah, absolutely. It's definitely taught me, even though I do have a PhD in psychology, you don't know grief until you go through it. And so I think that that was certainly eye opening for me. Absolutely.

Now, his book came out, what was it, 94. How old were you when the book came out?

Yep. So his. So he had written books prior to the Millionaire Next Door. They were mostly focused on helping financial services professionals find affluent clients. Right. That, that's. He was a marketing professor. That was really his focus. The Millionaire Next Door came out in 1996. So if you recall, you know, I live in Atlanta. We live in Atlanta, grew up here. That was when the Olympics were going on. So I think the book came out that fall. And I was a sophomore or junior in college at the University of Georgia. And the book came out and, you know, again, it was just something else. Another thing my dad was doing. Right. It's just like he has work and I knew about it and I certainly was involved a little bit in it here and there growing up, but we really didn't recognize certainly the import and kind of what was going to happen with that book when it came out. But it was fun to get. He would send me faxes like the fax machine of how it was rising on the New York Times bestseller list. That was. Even though I knew that was important, it didn't. I had a lot going on. I was in college and, you know, probably didn't give it the respect that I needed to back then.

I think probably less of an impact it may have had on you already being away from home than if you had been, you know, in the house still when that happened. So your degree was in industrial psychology. What interested you enough about that to get a PhD in it?

Yeah, great question. So I, you know, I started off on the clinical side of psychology, so began studying and looking at different kinds of abuse and was thinking about being a clinician. And what I recognized was I was very good at diagnosing with assessments. I liked the assessment side. I liked the survey research side of psychology and couldn't really, you know, again, I don't know how you do what you do, but I couldn't really handle that emotional side of it. That was not going to be something that I was going to kind of have a lifelong career. And I did recognize that I enjoyed the side of understanding personality and attitudes and values and all those things. So that's what led me to industrial psychology. My professor at the time suggested I check that out and recognized or found out that There's a whole, you know, a whole division and discipline within psychology that helps organizations primarily hire individuals. That's kind of one of the focus areas. And that was my focus area, as well as psychometrics. So that's kind of how I went into that field. And again, you know, had some experience with survey research, watching my dad conduct these huge surveys. We'd get stacks of them back on the dining room table and things like that.

Literally. Paper surveys.

Yeah, paper surveys, yep. With dollar bills that he would send out as the incentive, like real dollar bills. And then, yeah, that's how they. And some of them came back. If they didn't want to start complete the survey, they actually would not keep the dollar bill. It was pretty amazing to see that.

Now your work, at least partially, is intertwined with that of your father's. What's the biggest professional disagreement between you two?

Well, I would say, you know, when I was. When I started my business and kind of went out and went away from the HR side, which is where psychologists mostly work, you know, I began thinking about how psychology could impact, or at least be used to understand how someone would build wealth on their own. If you think about the millionaire next door, the whole premise there is, you know, some folks really are able to transform income into wealth, and others have a more challenging time with it or aren't able to do it at all. So, you know, I think the biggest disagreement we had when I began that route came from. From a couple things. One was related to kind of the openness that financial services would have to this really cool research I was doing. He said that they would eat me alive. And I think to some extent he was right. I mean, we started data points probably four or five years ago, and it's taken a while to get to where we are today. So I would say he was probably right about that one. And then when we began to talk about the latest book, I really was focused on email surveys. We cannot send out paper surveys. That's just not going to work. Nobody does that anymore.

Did you have to introduce them to SurveyMonkey or something like that?

Right, right, exactly. I'm like, we have this whole platform. I'm designing a platform anyway. But he was pretty focused on that. And I think primarily because if you think about, again, millionaire populations are really higher than that in terms of net worth. Those tend to be older folks. And so that was the thought there. However, we did find out, and unfortunately, I wasn't able to share this with him, that we had about the same response rate to an email sample as well as a paper version of the survey. So I'll say there was sort of a truce there on that one.

So, I mean, the next Millionaire Next Door is not necessarily a sequel, it's not necessarily a second edition. What is the premise of that book compared to the original?

Yeah, you know, I think there are a couple things related to that. You know, the first is simply that it can still this path or these paths that are available to individuals to actually achieve financial success are still there. And I think that again, if you think about the critics of the Millionaire Next Door, and then certainly a lot of that there's criticism that's warranted to some extent, but some of it had to do with the idea that the book was published in the 90s and things were really great then and that kind of thing. You know, what we were hoping to do is demonstrate that the same characteristics and a lot of the same habits and behaviors that allowed people to build wealth and transform income into wealth back in the 90s or the 80s when some of his research began, are still true today. And that's what we find. Certainly we found that in the research that we did as well as the research that I continue to do, looking at even populations like emerging affluent or mass affluent individuals. So you still see the same characteristics allow people to transform and come into wealth.

Now, it seems like your father's work was originally aimed at teaching companies and individuals how to market to millionaires to the affluent. But somewhere along the way, the focus seemed to change to teaching individuals how to become millionaires. Do you see that transition in the work too? And if so, how do you, how do you explain that? Was it just from the popularity of the Millionaire Next Door or what explains that transition?

Yeah, so, you know, again, early on he had three books that were very much focused on marketing and sales professionals. And so like you said, they were really designed to help people find, you know, wealthy individuals. But part of that work, and again, you know, I wish he was here to explain this better than I can, but part of that work really centered on the different kind of faces of the affluent. So, you know, there are some individuals that, you know, again, they've, they've been, they inherit all their wealth and they live in, you know, million plus dollar homes and so forth. That's one sort of group. But then there was this small subset of millionaires and affluent individuals that he found that he deemed the blue collar millionaires. You know, how did these people, how did these folks that are in, you know, scrap metal Dealers and other kinds of, like, crazy businesses that we would never think would be millionaires ended up being millionaires. And so he really ended up focusing on that particular sample as well as other business owners and other professionals to look at how they actually did that. How did they do that on their own own? Because that's a different kind of group than, okay, you know, my family owns half of, you know, South Georgia or something like that. So that's where he made the transition was from, you know, finding that group and finding how interesting that group was and then saying, you know, we can help there. There's a way to share this with others. I remember him sharing a story who's getting on a plane? I think it was snowing in New York back when you could actually get three different tickets on three different airlines to travel. And, you know, I think someone came and sat near him or in the area where he was sitting to get home again during an ice storm. And, you know, the way that he described this person was simply that he looked tired. He was working for what? He continued to work. He continued to be away from his family, and he kind of went through that. And how can we help that person recognize that even with this super high income, you know, you can spend it all and not have anything to show for it and have to continue that lifestyle? I think that was part of the reason that he wanted to highlight that in the Millionaire Next Door. And that's really when, like you said, he sort of transitioned to looking at millionaires, specifically how they, in terms of those prodigious accumulators of wealth versus those under accumulators of wealth were able to do just that.

Now, we're transitioning into my audience here. Those with high incomes that don't necessarily have high net worth at all. Let's talk about the concept of a millionaire for a minute. Obviously, a millionaire is somebody who has a net worth of $1 million, not somebody with an income of a million dollars a year. But the Millionaire Next Door is published in 1996. In order to have the same buying power today as a millionaire had in 1996, you would need 1.66 million. So a millionaire was originally a French term from the 1700s. But our image of what a millionaire is probably comes from the gilded age, the 1920s, maybe the creation of monopoly in 1935 with the guy with the.

Top hat on it and the monocle. Right?

That's right, the monocle. A millionaire in 1925, though, is the equivalent of someone with a net worth of 15 million today. This idea in our popular consciousness is quite a bit different from what today's millionaires are. How does that fact, the fact that the name and image hasn't changed but that a million dollars is nowhere near what it used to be, affect how we discuss this subject?

Yeah, you know, I think a lot of it has to do with language. It's easy to talk about a millionaire that's very descriptive. I understand what that means, you know, and it has a marker, it has a number assigned to it. So I think that that's part of the reason that it sticks around today. But I do think that you're right. I mean, you know, in terms of kind of whether or not that's right for you as an individual. Do I need to achieve millionaire status or do I need something that's a lot higher than that in order to sustain me and sustain my lifestyle into my retirement years, for example? So I think it's kind of, you know, I guess arbitrary or really up to the individual what financial success means to you or to anyone. But you know, again, I think that that that term sticks around. It's popular, it's searched for a lot. We know that. And so I think that that's why it continues to be something used even though we know that it may take much more than that, for example, to fuel all kinds of plans that you have for your life.

Yeah, for sure. And I wonder, in 20 years or 50 years when it's worth even less, a million dollars will become worth even less. Today we malign the millionaires and billionaires, will we still be talking bad about the millionaires in a few more decades? It makes me wonder. But the main lessons of your work seem to be that millionaires are mostly self made, that they're surprisingly frugal, and that they spend their time doing things that build wealth. So I want to talk about each of those subjects in turn. Your surveys show that 80% or so of millionaires basically receive no inheritance. They're self made, and they feel that a large part of their success was due to their own hard work. But surveys of the general population show that people in large part think success is mostly due to luck. And that disagreement is perhaps the greatest difference between our two political parties. As usual, the truth probably lies somewhere in the middle. But in your book you say that it's a myth that you are your group. And by that we're referring to where you were born, the color of your skin, your gender, et cetera. And say, believing that gives you an out to explain why you cannot get ahead. So I wanted to ask you what your thoughts are on this crucial subject. Why are the rich rich and the poor poor, and how much of that can be attributed to hard work and ability, and how much should be attributed to circumstances and discrimination and privilege and luck?

Yeah, that's a fiery topic, for sure. I'll say a couple things about that. So, first of all, what we know is that those of us who really view financial success as something that we can control. Right. That's up to us. That we know that if I work hard or if I am able to be disciplined about my finances, that I will be more successful than those that believe that something else or someone else controls their financial success. That's what we call locus of control and psychology, and it does correlate with building wealth and net worth. So we know that that's the case, and that's why that myth of, well, if I'm in a certain group and my group looks like this, in general, I can't get out of this. And so, again, that's one of the things that certainly is a myth. You know, I think that you're right. I think that it's there. There's a combination. I think my. My father certainly was very aware of the fact that if you are. If your income level, you know, is again, at the poverty level or something like that, it's going to be extremely difficult for you to pull yourself out of that and become a billionaire, a millionaire. You know, those are kinds of. I think those are the kinds of things that people get stuck on. Right. And he certainly recognized that, and I do as well. I think the difference, like I said, comes in when we're using some of these things as sort of crutches for why we can't. We can't do things. We know what it takes to build wealth. We know what it takes to sustain wealth from a behavioral perspective. But a lot of us just don't want to do those things. And that's the hard part. But I think it's naive to not recognize the fact that there are challenges that each of us has because of those factors that we don't have to recognize. We absolutely do need to recognize them, but. And so it may be harder for some to overcome those. But in general, what we know is that if you have this mindset that you can actually impact what happens to you, the likelihood that you'll be successful is higher.

Yeah, I've always wondered. I mean, even if it's impossible to ascribe a Percentage of your success to your circumstances versus your work and ability. There's only one of those you can affect, right?

Yeah.

You know, there's not. You can't affect your circumstances. I mean, you can vote at the ballot box and you can protest and you can work for societal change, but when it comes down to your personal finances, the only thing you can do anything about is your discipline and how much you work.

Yeah, I was. That's a great point. I was talking to one of our clients that works with us and who works with clients, was sharing with me that their clients scored low on what that, that factor that I just mentioned, which is that control factor. And they felt like it didn't demonstrate, you know, how much they've grown since they've been kind of an adult and working into, you know, how to manage their own finances. And that didn't really reflect them. They didn't feel like. But at the same time, when we kind of take the attitude that things around us are more important than what we're actually doing, I think that that is where people get tripped up for sure.

It's kind of a toxic mindset that prevents you from building wealth.

Right? Exactly.

So maybe what we should say is that that locus of control is a necessary but not sufficient trait to build wealth. You gotta have it. But maybe it's not everything, right?

I mean, going, you know, like you said again, millionaires and those that tend to be financially successful, if we don't want to use the millionair, you know, it certainly is part of it, but it's also the frugality piece. I mean, we see that consistently, whether we're talking about those that are making six figures or those that are just out of school. Those that are able to live below their means tend to be, you know, better at accumulating wealth over time. So it certainly is, you know, kind of that mindset, but it's also those frugal behaviors that lead to transforming income into wealth. And again, you know, that that has a lot to do with conscientiousness and discipline and some of those things that aren't fun to talk about, but, you know, they work. And that's the hard part about it.

It's a great segue into what I want to talk about next when, when I hand a book, whether it's your book or your father's book or whoever's book, a book from the Millionaires series to someone, the main takeaway I want them to get from it is perhaps best said by Morgan Housel and I paraphrase a little bit, but he said everyone wants to be a millionaire. Everyone thinks they or says they want to be a millionaire, but what they really want to do is spend a million dollars. And you become a millionaire by not spending a million dollars that you could have spent. And your work has shown that real millionaires don't wear flashy clothing or display expensive watches or drive sports cars. What are your favorite statistics about the frugality of millionaires?

Yeah, you know, I think that one of them is definitely what they learn from their parents. You know, part of my area of research when I was in grad school was looking at life experiences and how that impacts what we do today. So what are the kinds of life experiences that you have as a child or as an adolescent and how does lead to your career success and things like that? Again, I think it's about 70% or so of millionaires report that their parents were frugal. So they saw these frugal behaviors modeled at home. And, you know, again, whether that was causal or not, they tend to also be frugal. Today, we do see that maternal frugality. So if your mom was frugal, that predicts your net worth above and beyond age and income. In other words, it's a significant factor in predicting your net worth. If you had a frugal parent at.

Home, is it a parent or is it specifically a mother?

Yeah, we looked at maternal and paternal. So this was a study we did a couple years ago, and I think the paternal was not quite as strong. Interesting, because again, I think that's primarily because, again, in more traditional, you know, and again, the study was done a couple of years ago. You know, the mom was the one at home traditionally. And so I think that that's why it was important. And in that same study, we also found, again, thinking about careers and physicians, we also found that the mom's influence on careers was also high. So that helped with job satisfaction and things like that later in life as well. So if you have a mom that's asking you about what you want to do and nagging you to join groups and things like that, that's a good thing, even if it feels annoying when you're growing up.

Interesting. So what are millionaires driving? Are they still driving an F150?

Yeah, so that changed a little bit. I think it's Toyota and then Honda and then Ford mixed in there. BMW was number four again, because not only did my father have tons of stats and statistics, but now, again, working in the field that I work in, We've got things floating around, but yes, I believe that's the correct order. So it's still the case that they're driving these sort of modest, if you will, types of cars. Very few of them lease vehicles. When they do, and you can see this, I think that we talk about this in the book, that those cars tend to be a lot more expensive, so they're leasing kind of luxury vehicles. And, you know, again, when you think about not only you driving something, but your spouse and then maybe eventually your teenage kids, that can be a real trick in terms of accumulating wealth as well.

I think it's David Bach that talks about the latte factor, most famously, where he says, you know, you skip a latte every day and it adds up to a gazillion dollars by the time you're 60. You know, what are your thoughts on the big pieces in your financial life? You know, the mortgage and the big rocks versus the little rocks, the daily lattes and the little decisions. What do you recommend to someone trying to build wealth? Should they focus on the big stuff or do they need to be generally frugal with everything?

Yeah, so I would say maybe have a little different take on this, and maybe I'm way off of what, what you want to focus on here. But, you know, I think that when you think about the big decisions, that often leads to the small ones. And so, for example, if I decide, you know, my husband and I decide we're going to move to a certain kind of neighborhood, right, in a certain kind of school district where everyone's driving certain kinds of cars and they're all sending their kids to private schools or what have you. And again, that's fine, but you have to recognize that that leads to other lifestyle choices and lifestyle influence, really. So, you know, I definitely can see, obviously if you save a certain amount of money every day by not having that latte over time, that's going to help you. But, you know, you kind of have to ask yourself, well, why am I buying a latte in the first place? Is it because everyone around me is always going out to dinner and out to lunch and out to breakfast? Is it my co workers? Is it my, you know, my neighbors? You know, what is it that's influencing me to do that? So, you know, again, part of his research and part of the, the side of the research that I really enjoyed was that influence piece where you plant yourself, where you buy your home really has it, or, you know, again, rent or live or what have you influences a lot of Other decisions, when you ask that question, that's immediately what I thought of.

Now, a lot of times when people hear this stuff, you know, the first time I read the Millionaire Next Door, there was a lot of surprises in that book to me, you know, surprise that these people that have a lot of money don't necessarily spend a lot of money. What's it like to see that light in people's eyes when they realize that their ideas about what millionaires do or have is completely wrong?

You know, it's funny because now the folks that we tell this story to, if you will, a lot of times are our kids or the friends of our children. Right? So, you know, again, a lot of people, certainly since the Millionaire Next Door came out, but also all the other books out there that talk about frugality and things like that, I think that's where we really are able to sort of influence now is with. With our children, is telling them, you know, just because your friend just got the iPhone 12 doesn't mean that they're. They're wealthy. It means that they spend money. And so that, that is eye opening to them. And it's a. It's a hard lesson to learn, especially when everyone's walking around with the newest, latest, and greatest gadget. So that's, you know, it is really interesting to see that reaction. You know, I think that we continue to see or continue to get feedback from folks that have read the Millionaire Next Door for the first time, maybe didn't read it back in the 90s or whenever. That will share with us how eye opening it was. That will share with us that, hey, my parents did this and this is why they were able to send me to college, and this has led to me being successful. So I think that those are some of the things that continue to be, I guess, kind of supportive of this research and the work that I'm trying to continue to do.

Now, the whole Fire movement was kind of born in between your father's book, the Millionaire Next Door, and this book, and it's kind of been born and grew up. Do you have any thoughts on the Fire Movement?

Yeah, I think that what's interesting about that is the fact that it illustrates a different path to building wealth. And I think that a lot of people think, oh, the Millionaire Next Door, I don't want to be frugal. I don't want to live like that. But there are a whole host of different paths that were spelled out in that book as well as the current one that illustrate that. Look, if you have a super high income, or even if you have multiple income streams, there is a way to sort of retire early. So I don't have any, I guess, problem with it. I know a lot of folks would say, oh, you can't do that or you shouldn't. It's not good to just stop working. And I don't think anyone that's really in the fire community would say, I don't do anything all day. I just. Just sit around and drink lattes. So I think that the fire community and certainly that movement illustrated that there are multiple ways to achieve financial success, and there are, again, multiple definitions of financial success as well.

Now, the original book had a whole story of Dr. North and Dr. South, and that was really formative to me and I think many other financially successful physicians. I even discussed that in my original 2014 book. Most of my listeners are doctors, most of whom at some point in their early 30s, went from an income of something like $50,000 as a resident to something like 200 to $500,000 a year as an attending physician. What advice do you have for them in regards to the role of frugality in their success?

Yeah, you know, so what I would say is this, is that we have patterns of behaviors. We have patterns and habits, habits that we, you know, that we do without thinking. And if you can sort of establish a pattern within your life and within your household of generally living below your means early on, you can sort of sustain that habit even when you're, you know, again, you have a large increase in income. What's really hard is, I would say, to kind of always be spending and sort of spending to your limit always, and then move into a frugal stage, let's say, four, five, six, seven, eight years into having that really high income. In other words, it's going to be a lot harder because early on you might decide, again, like we were talking about before, you might decide to purchase a home. Maybe that's a little bit of a stretch at the time, and then that leads to a whole host of other decisions. So I would say, you know, establishing those sort of patterns of being frugal, even if it's maybe not the funnest thing to do when you are, you know, early on in your career, will allow you to keep those behaviors later in life as well.

So you'd say it's pretty good advice for me to tell them they should keep living like a resident for two to five years after they get out.

I think that that is very good advice. Yes, exactly.

Not to Put any words in your mouth?

Yes, you don't have to. That's fine. Yeah. No, I agree.

So millionaires tend to spend time on activities that build wealth. They work a lot of hours. I think they work about 20% more than non millionaires. They love their profession or business. They often have hobbies that make money. They often manage their own investments. How important do you think it is for a doctor who wants to be financially successful to number one, love their work and number two, manage their own investments.

So I think that when you think about loving your work, that just, you know, allows a whole host of kind of wellness and health related benefits. Right. So I'm not stressed. I enjoy what I'm doing all day. It also allows you to maintain that income level. Now I would say that with physicians that's probably a little different. Right. So you, after all that schooling, the likelihood that you would drop out of that kind of profession is probably low. But loving what you do every day makes, obviously has a lot of benefits outside of just the financial benefits in terms of managing your own finances. You know, certainly if you have the interest and you're able to put processes in place, you maybe have a good support team at home, I think that that's perfectly fine. And I think that a lot of people can do that. My husband's a great example. He is a tax attorney, a long suffering tax attorney, loves personal finance. We do our own finances and he does them. But I'm a liberal arts major and I doing the same thing over and over again, it would be mind numbing to me. And so if there were two of us in the household like that, that really, you know, were more creative and more, you know, big picture thinkers, it would be bad for our finances. And so that's when it would make sense to have someone, especially if we had the income to manage it for us. But I think again, if you have the interest and the time and the support at home to do that, then certainly I think that that's something that you could do.

Got to be detail oriented though.

Yeah. I mean again, we go back to this concept of frugality. There's another component called planning and monitoring. If you're high on those, you will be able to build wealth. And if you're not, it's going to be harder for you to track to. Again, it's a component of conscientiousness and you know, you want your accountant to have conscientiousness and you certainly need it as well. If you are again managing your own.

Financial life now, your father coined a term that's become somewhat famous. I don't know how descriptive it is, but it's come to have a certain meaning. He called it economic outpatient care. And it's a factor that a lot of my readers really worry about. They want to help their kids not have as hard of a path as they had, but they also don't want to ruin them with their money. Can you explain a little bit what economic outpatient care is and give some guidance to the best ways to avoid ruining your kids with your money?

Yeah, so, you know, the best way to describe that is really supporting, financially supporting your children and to their adults adulthood and supporting their lifestyle. So for example, if you are funding your adult child's membership at a country club or you are funding, you know, you're making the purchases of cars for all of your adult children, something like that, when they, when they are working and they have the wherewithal to do it themselves. You know, again, we, I certainly understand that. I think, you know, my dad grew up as a, in a blue collar neighborhood in New York and I think he didn't want us to have as hard a time as he did. But I think that recognizing that in order to build and sustain wealth on your own, you're going to have to have some of that hard work, some of those hard knocks life lessons, whether you get them when you're younger or older. It's better to get them younger, by the way. And so I think that there is a balance, there's a balance between, you know, enjoying the money that you have with your children today, but then also setting them up so that they understand that that is your money, that you or your, you know, you and your spouse's money. And that, you know, when they grow up, it's not that they're going to move in into a home that looks just like yours. Right. I mean, I think that setting, even having those conversations early can be useful and helpful. That, you know, helping them understand what they're going to have to pay for and being okay saying no, that's really challenging I think especially for those who maybe had it tough, you know, had to pay their own way through school. It's hard to say no to their, to their child because they feel like, oh, I've done all this hard work, why should they have to do it now? But it is the case again that if you can build that discipline and hard work ethic early on, it will benefit them in the long run. Even if it's hard to do in the short term, do you think it's.

Important to put them through some hard times even if they're a little bit artificial? Let me give you an example. I got a 16 year old now and when came time for her to learn to drive, we went out and bought an $800 car for her to learn to drive in and drive to high school for as long as it lasted, which was about a year. Okay. And it was a little bit artificial. Right. Obviously we could have bought something that was much more expensive. She knows that, we know that, all my listeners know that. But we decided to do it anyway. Do you think there's any value in that or do you think we're just playing games?

Yeah, that's a great question because I have a 15 year old. So I'm glad to hear that that was your experience. You know, it really depends. I think that if you manage that their expectations the right way, and she probably already knows that you are focused on being frugal and not, you know, or to some extent and you know, not necessarily providing, you know, every luxury to your children. She's probably already aware of that. You know, I don't know. I guess I would ask, you know, did it, did she have a good experience with that? Did she learn anything? I mean, those were the kind of success measures I would maybe put in place for doing something like that, having that artificial kind of experience.

Yeah, she certainly rattled off the five things I wanted her to learn from the experience. I'm not sure we really know if it works until you're 30 or 40 though, so maybe the jury's still out for a while.

We have seen, I will say though, you know, you can see examples of extreme frugality backfiring. And so in some of the comments that we, the open ended comments that we through in a study back in, I think it was 2013 and 14, did we looked at some of the ramifications of that extreme frugality? Like even though, you know, we know that we can afford to buy soap, we're going to use only soap that we got at the hotel rooms when we used to go to hotel rooms, that kind of thing. And those can have some damaging effects too, depending on how it goes. And especially if there's not a lot of great communication in the household and things like that that can lead to adult children wanting to spend everything. Right. I don't know, we'll have to see. We'll check back in in a few years and see what it ended up doing.

Yeah, that's exactly it in your book, you say rule number one for raising productive adults is to never tell your children that you are wealthy. I couldn't tell if you were completely serious about that, but if you are, how can you possibly enjoy any of your wealth without your kids cluing into it?

Great question. You know, I think that it goes back to what we know about life experiences. And what we know is that those millionaires tend to have frugal parents. So yes, you can enjoy, you know, the hard earned money that you've made and that you've saved. But the difference is, you know, again, I would say if you look back at the millionaire next door and you look at that chapter that has Dr. South and you see how they describe, you know, how my father describes the kinds of, of spending that he was doing was out of control. And I think, so there's a difference between enjoying it and simply not being responsible with it. And so maybe again, I don't have children that are adult children yet, so I don't know the impact that will have on our kids. But I would say there's a difference between being able to enjoy it and simply wasting it.

Let's talk a little bit about investor characteristics and how that plays into the decisions that investors make make. Whether they make good decisions or maybe decisions that aren't so great. What characteristics should investors strive to develop in themselves or try to identify in themselves?

You know, so again, we kind of look at what makes a good investor from a competency perspective. Like if you were going to hire, let's say, an assistant to work with you, you'd want them to have certain competencies. Well, it's kind of the same when we're talking about investing. So we look at investing like a job, a specific job that you have to do within your household, especially if you're managing it yourself. The five key characteristics that we consider are things like being confident in your investing decision making. That includes being knowledgeable, reading, learning. We know that only about 18% of us learn how to invest from our parents. So it's got to come from somewhere. So you've got to build that knowledge. The other piece that physicians tend to not struggle with is that volatility composure. So volatility composure is the emotional side of investing. It's the ability to keep your cool no matter what's happening around you. And you can think about how that plays out at the job, on the job. But it certainly is the case when we're talking about investing and we're watching the markets or we know what's happening. If you think about March and April, we had, you know, advisors that were sharing with us, hey, you know, the folks that were scoring low on this particular component ended up being the ones calling us and worrying about what was happening in the markets. So that's the emotional side of it. Certainly risk personality and preference, those are two different components. But you've got to have some preference for having risk within your portfolio in order to take advantage of investments. Risk personality deals more with wanting to have sort of exotic investments versus more traditional investments. And then the last piece is sort of this judgment. So am I a long term investor? Do I recognize the value investing and not touching things, or am I more of a short term investor? Do I really look at investing as something that is a day by day, hour by hour kind of activity? Typically, those that are more of the long term persuasion tend to be more successful over time. And again, like I said, we typically see physicians are very high on that volatility composure, which is very different than some of the other kind of occupational groups that we see.

Well, I hope physicians are becoming better and better investors as time goes on. You know, some of the criticisms that have been leveled at them is that they are more confident than they should be. Sometimes that the knowledge lags the confidence. In my experience, I almost see the opposite sometimes where the confidence is about a year behind the knowledge base that they don't realize. Yeah, I could have done this myself a year ago, but they weren't quite confident enough to do it. But I think the stereotype is, you know, the classic general surgeon stereotype. Sometimes right, sometimes wrong, but never in doubt.

You know, they always know what to do.

Yeah, yeah, that's exactly right. So at any rate, we should wrap up here soon. But you've got the ear of 30 to 40,000 high income professionals, mostly doctors. Is there anything else you'd like to tell them that we haven't already talked about? Talked about?

Well, that we haven't already talked about? You know, I, I can't, I can't meet that, but I, I do. I would go back to this patterns of behaviors piece, meaning if you can establish some of those behaviors that are needed to transform income into wealth again, you know, my, certainly my father wrote about them, I write about them. You know, you talk about a lot of them. You know, if you can establish this early, that will allow you to take that great income that you're making and transform it into wealth that you can enjoy, your family can enjoy for the long term. If you're not there today. The good thing is you are in control. You can change your behaviors. It's not always easy, but there are ways to do that. And so I think that that's part of what I would just leave everyone with.

Awesome. And if people want to get a learn more about you, either your work as an author or your work at Data Points, what's the best way for them to learn more?

Yeah, you can visit our website@datapoints.com you know, I'm on LinkedIn and Twitter as well, Arafalaw, so definitely reach out.

All right, Dr. Falaw, thank you for your time on the White Coat Investor podcast. We appreciate you coming on.

Thanks for having me.

Bye. Bye. All right. I hope you enjoyed that interview as much as I did. That's one of the best parts of being a podcast host is you get to go out and just ask people that you want to learn more from and talk to if they're willing to come on your podcast. And every now and then they say yes. So it was wonderful to talk to Dr. Falaw about that. I hope you enjoyed it. Thanks to those of you who are leaving us a five star review about the podcast. It really does help share it with other people. Our most recent one came in from Trent Keel, who said the authority on physician hire and her finance. 6 out of 5 stars, the WCI podcast is the single best source of financial information for high earners. The earlier episodes cover some of the basics more comprehensively, but I feel overall the podcast works best as a supplement or introduction to Dr. Dali's books as it goes into several deep dives on the nuances of investing, taxes, et cetera. Incorporating this podcast into your daily commute or workout will pay handsome dividends later in life as you will most certainly be closer to financial independence much earlier than you would have been otherwise. Furthermore, as a high earner you are likely to be a target of many a predatory financial advisor. But if you stick to the principles Dr. Dali has laid out, you'll be able to see them coming from miles away. The WCI is simply the best period. Listen to his podcast, read his book, and if you have an interest, take his course. You'll be glad you did. My only regret is that I didn't learn of him sooner, so thank you for that, Trent. Appreciate that five star review. And thanks to those of you who have left us a rating or a nice long review like Trent left. Remember that WCICON21, if you want to get the swag bag, you got to register before January 5th. That gives you time to do it using 2020 CME Money or 2021 CME Money. But if you don't do it by the 5th, you can still register for the conference. You just won't get the super sweet swag bag. As a white coat, you have valuable knowledge. Various companies want that knowledge and they're willing to pay you for it. That's why we put together a list of recommendations for companies that pay you to take surveys. If you're looking for a profitable side gig for not too much effort, getting paid for surveys could be the perfect solution for you. You can make extra money, start a solo 401k and use your medical knowledge to impact new products. One of the WCI columnists makes an extra $30,000 a year just doing these surveys. Sign up today and use a fraction of your downtime to make extra cash. Go to whitecoatinvestor.com mdsurveys. You can do this and the White Coat Investor can help. Head up, shoulders back. You've got this. We can help. We'll see you next time on the White Coat Investor Podcast.

My dad your host, Dr. Dahl, is a practicing emergency physician, blogger, author and podcaster. He is not a licensed accountant, attorney or financial advisor. So this podcast is for your entertainment and information only and should not be considered official personalized financial advice.