Your human capital is just as important as your financial capital. In fact, it wouldn’t be a stretch to consider your human capital, your potential to become financially independent over time, more important than your net worth at any one particular time. Over the past few weeks, I’ve been writing in depth about ways to boost your human capital through education, experience, and particular approaches to life decisions. This is the final article in the series.
Assuming the stock market provides a average return of 8 percent per year over the long-term, the earlier you begin investing, the better you’ll be in the future. Thanks to the way returns compound upon each other, starting a few years earlier could be the difference between retiring comfortably and struggling on a fixed income. Of course, market performance in the future will have a great effect on your overall performance, but those who start early generally have a distinct advantage.
The same theory applies to building your human capital. “Start early” is generally the worst advice anyone can communicate because it’s impossible. Until scientists invent a time machine, by the time someone says to you, “You should have started earlier,” you’ve missed your opportunity. If the message of starting early get across, however, the philosophy can be used for other situations and can be passed along to others. For example, while I didn’t save any of my income until I was in my late twenties, now knowing that it’s important to start early, I can help my potential children understand this importance from an earlier age.
While many financial experts have succeeded in convincing people that it’s important to start saving and investing early to maximize the advantage offered by time, not many people talk about developing your human capital early.
By the time you finish your first year of high school, you should be well on your way to a financially successful life by exploring your talents and interests, taking part in extra-curricular activities, and looking for opportunities to lead others. It sounds like a lot to ask of a fourteen-year-old kid, but if parents help steer children in the right direction without overloading them, these basic tenets will go far in helping the child develop into a successful adult.
Besides grade point averages and standardized test scores, the criteria that colleges use to evaluate potential students for acceptance, criteria which schools believe correlate to success, tend to be the same aspects that build human capital. Those extra-curricular activities, leadership roles, volunteer work, a diverse set of interests, and the ability to write an essay well all help a student convince an admissions board that he or she will thrive in the college environment.
The college experience varies from person to person. You could gain a lot of maturity between ages 18 and 21, or you could spend four years wasting your life like so many students away from their parents for the first time. I wouldn’t be interested in a lifestyle that involves keeping my head in text books twenty-four hours a day, seven days a week, so this is not what I’m suggesting.
Take advantage of the opportunities your college offers you. Meet people, get involved in organizations, gain some experience in your field, and determine where your passion lies. College is the perfect time to awaken your soul to the possibilities before you find yourself in a 40 to 80 hour-per-week job.
For most Consumerism Commentary readers, it’s too late to go back to being 15 years old or 18 years old to gain the human capital advantages they might have missed. The best one can do in this situation is to start right now.
In addition to starting early, I’ve offered nine tips for boosting your human capital. If you haven’t started already, start now. If you are already on your way to ensuring you are less likely to have financial problems in the future, consider doing more.
Every day, take just a few minutes to do one thing that enhances your human capital. It can be as easy as working out for twenty minutes — good health helps ensure you’ll have an ability to earn income longer — or updating your LinkedIn profile to make your listing more appealing to clients. You can take a step further, too, by meeting up with a colleague for a mentoring session. If you spend some time each day to think about what you can do to make yourself more valuable to the world, you’ll be putting yourself in a much better position in the future.
Published or updated November 24, 2011.