Forty years ago, I was sold a $50,000 Whole Life insurance policy that cost me $750 a year in premiums.  When I cashed it out last year, it was worth about $84,000.  This is a rate of return well below 2%, and I paid the premium for several years.  It was a bad investment.  It was a good deal for the broker.

Back then, I didn’t know how to say no.  I was a first year medical student.  Life insurance salesmen descended on medical students like locusts on a wheat field, asking each one to give a couple other names of fellow students.  I refused to do that. Credit card companies in 1975 wouldn’t give me a card, when I became a physician (no way students ever got credit cards back then), because I was only an intern earning $10,000 a year.

I would have been much better off buying a 20-year $1 million term policy that I could afford. Every young married couple should have term insurance.  This is a time when people are usually healthy, their incomes are low, their debts are high, they may have children, and sudden death can devastate the survivors.   They can afford $500,000 term policies.  A whole life policy of that size is unaffordable.

Insurance salesman, however, make more money selling whole life policies, so that is why I got one.  It was an introduction to the world of people acting in their own self-interest. Having a fiduciary responsibility to a client means one does what is best for the client, not what is best for the provider’s income. As a physician, I had a fiduciary responsibility to do what was best for my patients, not me.  It meant that I got up at 2 or 3 a.m. to treat a drunk who had fallen, or a guy who had gone off his motorcycle and wasn’t wearing a helmet.  I was spat upon, had to hold a drunk still in a CT scanner, where the scans took a half hour to do, not a few seconds, yelled at, often not paid, but  able to be sued if I screwed up.  The next day, I was exhausted and functioned at a level of being legally drunk. Back then, in the “good old days,” doctors worked while exhausted.  I said at the time it was wrong, and I was slammed by my partners for saying so, because good doctors functioned well for 36 hours straight.  Research long ago showed that notion to be false.

Over the years, I have made many financial and medical mistakes:  I invested in a few REITs (Real Estate Investment Trusts), but not many.  I had suspicions that something was amiss in 2007, but I listened to my financial adviser explain them away.  He gave me an article by a Wharton professor, who ensured the reader that 2008 would be a great year. Financial advisors cannot be given carte blanche. I was executor of my father’s estate, and half of the legal advice I received was wrong.  Even the lawyers can’t understand our financial system, which is in my view deliberately made complex.

Credit card debt is a major problem and a classic example of how lack of regulation allowed banks to do well at the literal expense of their customers.  I pay the balance off every month.  Always. By doing so, I get an interest free loan from the bank.  Credit card debt has astronomical interest rates that only recently have been made public.  Many think that making the minimum payment on a credit card is all they need to do.  It is not.  The interest is charged on the full amount.

A brief comment on rate of return.  One will hear that a security has a 4% rate of return.  That rate does not include fees to buy and sell the security, nor does it include the taxes one pays on the gains.  It isn’t dishonest for the financial community to do so, but it isn’t realistic, either.  If I make $1000 on a stock but pay $400 in taxes and $50 in fees, I haven’t made $1000; I have made $550.  My wife and I had a house in rural Arizona.  We sold it for double of what it cost to build it, but after fees on both ends and capital gains taxes, over 20 years our rate of return was 1.8%.  That is a real rate of return:  money we had.  The doubling was simply a number, before costs of selling and taxes were factored in.   I take my net worth and multiply it by 70%, and that is my real net worth, because selling everything will be taxed.

I recently watched a story on Suze Orman about a 69 year-old woman, whose husband’s pension died with him.  She had a house underwater in Florida, and she was nearly destitute.  Indeed, she was living on social security, as do many Americans.  What happens to them if we “privatize it”?  Like the insurance agents descending on medical students, financial experts will descend upon the elderly.  Good looks and saying what people want to hear trump truth and fiduciary responsibility for the buyer’s best interests. A lot of elderly can’t understand finances and money, don’t think clearly, and are going to get burned.

I made many financial mistakes, and I teach math.  We don’t value math teaching and teachers;  the financial industry exists to do three things very well:  take your money in the form of high fees, move it around electronically, and generate paper.  Research has shown little value to society to moving money, compared to, say–a teacher.  I receive thousands of pages of financial paper annually (I sampled and made inferences), most of which are not understandable. I don’t have the time to read it.  Can you imagine how a poorly educated 80 year-old will handle it?  The few million words I get basically can be summarized with 12:  “you might lose all your money and we are not at fault.” Every other week, I receive a class action lawsuit notification about some company, often 4-5 copies, each 20 or so pages.   I have to decide whether to throw it away or try to research when I bought the stock and how long I held it.  I used to look up the information, but when the suit was settled in my favor, I got vouchers for something the company made.  I throw this stuff away now.  At least I can recycle it.

If I, a mathematician, who can tell you right away what the doubling, and tripling time of money is for a given interest rate is (divide the interest rate into 72, and 110 respectively, and the quotient is the number of years), cannot understand much of American finance, what chance does an elderly woman who has just been widowed have?  Or a young person out of school?  Mortgages should require a 20% downpayment and consume no more than 1/3 your income.  You don’t throw away money on rent; you have somebody else taking care of things that break, and you can leave when you want to.

Many live only on Social Security, never its intention, but now their only choice.  Many in Congress would like to destroy it and privatize Medicare, because the “market” will do a better job.  In Ayn Rand’s mythical world, the market does well.  In the real world of greed and grab, birth defects, viruses, auto accidents–heck, appendicitis–the market needs regulation, which it isn’t getting.  The “market makers” almost took down the world’s economy in 2008.  Many of them got bonuses worth more than I made in my lifetime for doing it, and I practiced medicine. Five years later, we still are not back to where we should be, many will never recover, and we are talking about removing the safety nets from those who need it the most.

While the paper continues to flow into my mailbox.

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