Net Worth and Human Capital
Mind Money Concepts | March 15, 2010 at 1:15 amFinance is definitely an important part of our lives today. We need money for everything, from shopping to paying bills to leading a happy life. Finance is also a status symbol and quite often, the way people are treated depends on the amount of money he/she has in his/her bank account.
Very little is, however, known about who you are as a person, if you are gauged depending on the wealth you have accumulated. If you are termed as a ‘millionaire’, it describes nothing about you, except your ability to make money. Net worth, today, means how much do you have financially. What about the other traits one has? Aren’t they his assets?
Okay, let’s leave the ‘traits aspect’ out of court for a while. Net worth is defined quite narrowly. You cannot neglect net income as well. It is something that defines your financial well being, your financial standing. This means, if you have your net income higher than your net worth, you are doing well. You can have a good financial picture even if you exclude all these concepts. This is because all these figures don’t include an important element of your wealth – The 
Human Capital. Human capital is something that defines your ability to earn money in future. Isn’t it your asset? It is, by every means.
Recently, a very good article about human capital was posted by New York Times. You possess a strong human capital, you can earn easily in future and hence, you don’t have to take much financial risk. If you, however, don’t have much of this capital, you would have to strive hard and ultimately, have to take higher risk to reach the same level within same time. So, the exposure of risk varies inversely to the amount of human capital one possesses.
Gauging human capital is not hard either. It can be measured by the stability of your current job and the capability to seek and acquire a new, secured job irrespective of the economic conditions and unemployment rate. Human capital also includes flexibility of your skills, that is, ability to work in multiple industries. For instance, if you are working as a mortgage agent, your job security is limited to the real estate industry. However, if you are employed as a financial analyst, you can get a job anywhere, in any industry. So, the human capital of an analyst is definitely higher than that of the mortgage broker.
Human capital of an individual also increases as he leads toward retirement. Old people might not be filled with the amount of enthusiasm and energy possessed by a young person. Also, the career path of an old employee is quite unstable as they don’t have many years left to work. Hence, a young employee has higher human capital than an old one.
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This article is not meant for everybody. Who has a good knowledge of finance can pick this article very easily.
By writing this article, we come to know that there are people still thinking out of the box.
This is just a summary of both the elements in financial language and it is justified.
It is not much explained in detail but overall it is good. Would be interesting to know in depth as well.
Net worth and human capital are similar terms as per my knowledge. There is not much difference in between.