Human Capital and Financial Capital Equals Life Cycle Investing
Unfortunately, too many people do not understand the interaction between human and financial capital. Human capital is the collective skills, knowledge, or other intangible assets that you possess in order to create economic value. A simpler way to understand human capital is your present and future earning power. Education is an investment in your human capital that pays off in terms of higher productivity.
Our economic life cycle is driven by a balance between our human and financial capital. Early in life we have a lot of future earnings power in the form of human capital. As we work, we have a choice; to either consume our present earnings or save for future needs. That balance between consumption and savings is one of the primary drivers of our economic life. Consumption is spending, while savings is the process of turning human capital into financial capital. That financial capital becomes our investments.
In this program, I discuss the general concepts of human and financial capital and how it is crucial to understand the big picture. Hope you enjoy the program.
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