Why Don’t High-Income Professionals Watch Their Money?

Professionals usually have a considerable advantage in personal finance—namely, their high salaries. In theory, these high salaries should make it easier to stay out of debt, save more, potentially take on some calculated risks in a fairly manageable way (if desired), and generally accumulate wealth more quickly. But is that what happens?

I haven’t really looked for statistics yet, but anecdotally, it seems to me that many professionals are not really watching their personal finances all that carefully. Just in the last six months or so, I have had conversations touching on personal finance with a handful of different folks in my office or otherwise in my industry/profession—all highly educated, all with healthy six-figure incomes, and all considered to be very bright folks with promising career trajectories.

As examples: one was half of a professional couple—both with healthy six-figure incomes—who found that they were spending all of their money and were tucking away nothing for savings. Neither was participating in their companies’ retirement plans. Another person was managing to save a little bit, and was participating in his company’s retirement plan, but 100% of his other savings was sitting in a money market account. Now maybe that made sense for him. But it was clear that it was not a specific decision that that was the best place for that money—so much as not knowing what else to do with it.

Why is this happening? Here’s my thinking on this so far:

• The obvious one is keeping up with the Joneses. Professionals may think, correctly or incorrectly, that their jobs or career advancement require a certain level of expensive dress or similar accoutrements. Or it may be as simple as everyone’s keeping up with the Joneses—but the Joneses at issue might be spending even more.
• Many professionals just starting up their careers probably have the hubris of youth. They feel like they are making lots of money now, and they believe that they will continue to make lots of money going forward. This may reduce their feeling that they need to watch their money carefully now.
• Hand-in-hand with that, many professionals probably believe that they are making more money than they really are— that is, that the money they make will go farther than it really does. Many young professionals don’t come from particularly privileged backgrounds; and their reference point may be that they are making twice as much (or more) than their parents were. Like most of us, they don’t factor in the effect of inflation over many years.
• Many professionals are in demanding jobs that require 60- to 80-hour work weeks. This shouldn’t literally mean that they don’t have time to manage their finances (though the ones who are parents to boot might argue with this!). But it may well mean that they lack the mental or emotional energy to tackle the personal finance in the time left— especially if they are not all that comfortable with how to tackle the personal finance.

I started off my own professional career paying little or no attention to personal finance; and it took me several years before I started focusing. For me, it started with the factors listed above, and it really flowed from ignorance. I knew barely anything about investing, let alone investing in some organized way or according to a specific plan. I thought that I was making a lot of money, which seemed like that should mostly be taking care of things for me. In fact, my stupidity was such that I anticipated making money before I even started—running up credit card debt during school, thinking it would be easy and quick to pay off, once I start working. The day I started at my first real job, my salary was probably 40-50% higher than what my parents made through their entire careers.

And after putting in a lot of hours on the job, personal finance may have been on my “to do” list—but it was not very high up. It was hard to get it above such items as “sleep” and the relaxation to which I imagined I was entitled after working hard. Why worry about money? “Money is the most easily renewable resource,” as one doctor is quoted, in The Millionaire Next Door.

Of course, the book goes on to describe how such doctors often find themselves in steep financial trouble.

So those are some conjectures as to why professionals don’t watch their money. Here’s to hoping some sharing of information here and elsewhere can counteract some of those reasons.