I realize the author’s point but reject it. Just like Warren Buffett uses book value to assess his performance, we should use real money to analyze our situation.

Thanks for reading and commenting.

http://www.qwema.ca/calc/humancapital.aspx

As someone who took “good” advice to buy a house 5 years ago:

Because: “You’re building equity and not throwing that money away on rent”,

Because: “I’ll be getting raises the longer I stay at the company, so my earnings will just keep getting better.”

And we made considerable extra payments every month except for two…

Fast forward to a year ago, when the company started letting people go, including my husband’s boss, and it was time to get the hell outta Dodge before he got thrown out. We’re trying to sell the house because we had to move 425 miles to get another job, and despite the equity because of the extra principal payments I made, we’re gonna have to pay thousands to get rid of it. We are maintaining an apartment and a house with extra taxes because it’s not our primary residence anymore.

So (the rent vs. buy debate aside–you live and you learn I guess?), because of my own experiences, I think instead of banking on Human Capital and assuming that your future self will have more earning power than your present self, it would be more prudent to not take on debt if you can help it, work your butt off right now to pay down debt you have and save like crazy, and learn as many skills as you can so that you can be prepared for things like tanking housing markets, crappy job markets, an unexpected disability, etc…

Basically, don’t count on Human Capital, because you might not have it. You’re only worth that much money if someone is willing to pay that much for you, just like our house is only worth that much if a buyer thinks it’s worth that much.

So yeah, I’d like to read more articles by Will because I like his style, but I don’t necessarily agree with this article.

Since this one point has been brought up a bit by a few commenters, I wanted to address it and give my response. I need to point out that the human capital itemin Dr. Moshe A. Milevsky’s book was discussed in his first chapter. I feel he began the book with discussing human capital to take readers to the “top of the mountain” before having to discuss items and tasks that the reader is more than likely not doing but needs to do. As many of you know and have pointed out, there are numerous things to consider and factor in when discussing finances and human capital is one of them.

My journey to financial freedom didn’t stop after reading his first chapter about “human capital.” Like BrentABQ pointed out:

“Wouldn’t it be even better for your self-esteem just to accept your situation, not beat yourself up about it, and start doing something about it”

And I fully agree with him. If I stopped after Chapter 1, kept making minimum payments on debts, and continued my financial behavior, then I have done myself an incredible disservice and have crippled myself further. So, I have proceeded to “start doing something about it” and gathered more information.

And like I pointed out at the end, there are numerous variables when calculating human capital, like expenses and life events. One of those just occurred for me about 2 weeks ago: I got married. After I said, “I do,” I went from a “me” to a “we” in seconds. So, that has added another HUGE factor on my path to financial freedom. And to increase my human capital, I’m taken on side jobs and tasks to increase my income and make bigger payments when it comes to my debt.

This has been great to get such a wide range of feedback. But just to clarify again, I didn’t stop after reading Chapter 1 (which I didn’t point out in my article, my mistake), but I have continued reading, learning, and more importantly, taken action to get myself (and now my family) financially secure and prepared. And now I know my “potential” for financial freedom is greater now than before.

Thanks so much again!

The idea was that students seemed to have no idea that some of the jobs they were studying/training for would take forever to pay off the loans they were piling up.

This article talked about a professor or teacher who actually had students research starting salaries and average salaries. Students were shocked — in a bad way.

My fear with this exercise is that they have no way really of judging their HC — if anything, at that age, it’s likely to be greatly overinflated. Letting them wander off increasing their debts because they’ve got a lifetime of “HC” ahead of them seems…cart before the horse?

It’s like having a rental property and saying that you’ll collect rent for it forever, while ignoring having to pay for expenses like improvement and repairs.