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Don't Underestimate Your Human Capital

Too often when people are looking at their financial situation they only consider what’s already happened. This makes sense after all, since nothing in the future is guaranteed. A person’s net worth, for example, is what a person currently owns less anything that they owe. For a refresher on calculating net worth, see here. It ignores any human capital that a person may have acquired. What is human capital you ask? Human capital refers to your future earnings. It’s typically a subjective formula based on your age, education, work experiences geographical location, and several other criteria. In general, the younger and more educated a person is, the higher their human capital.

Think of two people, Frank and Lester, both aged 25 and living in Nebraska. Frank has some student loans but just finished getting his MBA from Creighton University. Lester, on the other hand, decided that he didn’t want to take out any loans and decided to forego a higher education. Lester has been in the workforce for several years and saves quite a bit relative to his income, his net worth is currently $55,000. Frank hasn’t been able to save much, in fact, he owes $60,000 in student debt. On the surface, from a pure balance sheet standpoint, Lester is doing much better, having a net worth that is $115,000 more than Frank. When you dig into their earning potential, however, Frank is well positioned to out earn Lester over the remainder of their lives and probably live a richer retirement.


Human capital is why a bank may be more likely to lend money to a 35-year-old person rather than a 65-year-old. The 35-year-old has many more working years ahead of them whereas the 65-year-old may have a limited number of working years left.

Now that you know what human capital is you’re probably wondering what a person can do to increase theirs. Below are five proven ways to increase your human capital and unlock the door to increase your wealth.

1 – Do what you want

No, this doesn’t mean quitting your job and moving to Belize to sip piña coladas and snorkel on the daily. This means focusing your talents on what really motivates you. If you hate being stuck in a cubicle at age 25, odds are that you’ll really hate it at age 45. The problem at age 45 though, is that you now have reduced human capital, as your time until retirement is shorter, so it makes less sense to attempt a full-blown career change. The sooner you figure out what it is that truly motivates you, the better you’ll be for it. It’s never too late to make a career shift into what you’re passionate about, just be aware that the older you are the less human capital you’ll have after you make that big switch.

2 – Get educated

If you’re following the first tip in this post (doing what actually motivates you), it’s hard to go wrong in seeking additional education. Let’s face it, employers are requiring people to have more education these days. This can be seen from entry level positions up to senior level ones. Today, one in three people in the United States age 25 or older holds a bachelor’s degree. This has steadily been increasing. Thirty years ago, only one in five people had a bachelor’s degree.

It’s important to know that you can increase your human capital without obtaining actual college degrees. Stated another way, you don’t need to go into tremendous amounts of debt to further your education. Depending on your career path, look for online courses or certifications to provide additional education. Online sites, one of them being Coursera, provide thousands of courses from top universities, such as Duke, Yale, and Stanford. To top it off, many of these courses can be taken for free. Not wanting to take out a hefty student loan to pursue a college degree is understandable, but to turn down free courses online, which could instantly boost your human capital, is just absurd. Admittedly, it may not open up as many doors for you as a college degree, it can still set you apart from the next candidate, which can make all the difference in a person’s career.

3 – Be confident

We all know that one person that just exudes confidence. They seem so sure of everything, maybe even a bit arrogant. After having an intense conversation with them on a certain subject they can leave you unsure of everything you thought you knew. Wait, does the sun actually rise in the west and set in the east!? Are my teeth actually healthier from my daily latte habit due to the milk’s calcium?

Whatever direction you decide to go in, go confidently. Employers like to see confidence in candidates and this will instantly boost your human capital. Lack of confidence, on the other hand, is seen as a weakness by potential employers and may end up costing you a good job. Sometimes the old adage of “faking it ‘til you make it” can come in handy.

4 – Get healthy

For many people, this is one of the easiest things to do, yet the last thing people will attempt. People don’t generally associate simply being healthy with making more money. On job applications employers rarely ask how many consecutive years you’ve had HDL cholesterol levels above 60, or if your blood sugar level is under 100mg after fasting. But being healthy, and staying healthy, is one of the safest ways to maintain human capital. By maintaining a healthy lifestyle you’ll be able to push your retirement date out further, giving yourself more working years ahead of you if you wish to do so. An additional benefit of staying healthy is the fact that you’ll spend less on medical expenses, allowing you to keep more of the money that you do earn.

5 – Become well-rounded

You never know when that next opportunity will present itself. By being a well-rounded individual, you’ll be able to successfully take on new challenges, open new doors, and diversify your skills. Be open minded and say “yes” to trying some new things every now and then. Perhaps take a class that seems like it may be interesting to you, even if it doesn’t seem beneficial to your career. Or perhaps take a vacation to a new destination and learn about a different culture. Sometimes a person’s career, and therefore their human capital, makes great strides in the most unique circumstances.

Have you ever thought about your human capital when thinking of your financial situation? Do you think these five things could increase your human capital?

#HumanCapital #IncreasingWorth