Recently, J. Money from Budgets Are Sexy pointed out that you may have a higher net worth than Joe Biden, the Vice President. Biden’s net worth is about $215,000, lower than one might expect for a person in his position, and that’s due to his debt load. I could name a few financial oversharers who have listed a higher net worth, myself one.
Net worth measurements alone are notoriously bad for comparing financial well-being. Kiplinger does a great job of analyzing the Biden family portfolio and financial condition, offering suggestions for the Vice President and his wife.
- Cash out unnecessary cash-value life insurance policies.
- Simplify the overly diversified investment portfolio.
- Reevaluate the number of loans.
Despite some of their financial shortcomings, the Bidens have little to worry about. While their net worth tells one story, there are other aspects of their lives that make up for any deficiencies in their balance sheets.
Income. When the time approaches for Joe Biden to retire from politics, the family will receive at least $90,000 a year from pension payments. With a Vice Presidential salary today and the possibility to command high fees for speaking and other appearances for the rest of their lives, Joe and Jill Biden have little concern about being able to make their debt obligations while building more wealth.
Human capital. Being a popular political leader a heartbeat away from the Presidency has its privileges. You don’t get to the second highest office in American government without making some friends along the way. If you could measure human capital, chances are good that Joe Biden would score significantly higher than you.
Human capital is important because it points to future opportunities. With a high score, if this were to be something that could be scored, you have a significantly lower chance of finding yourself in a detrimental financial situation. If your office could call any company in the world and request a meeting with the Chief Executive Officer — and get the meeting scheduled on your own time — there is very little in this world you could not achieve from a capitalist perspective. As the Vice President or former Vice President, getting a meeting with any charitable organization in the world would be as simple.
When I started out writing Consumerism Commentary in 2003, I was very focused on building net worth. Over the years of thinking about my financial situation, I’ve tried to take on a broader perspective. I began to look deeper into what it means to build wealth. For me, it was never about the number itself, or how that number changes from one month to the next, but about the journey of improving my financial condition. I knew there was more to wealth than balance sheet and income, but it took me a while to focus more on human capital.
Wealth is about creating opportunities to thrive in the future. Being careful about expenses and building income so that bottom line does increase each month is important, certainly, but there’s so much more. Being in government is not in my future, but setting myself up for the life I’d like to live is my primary concern today.
I liked sharing my monthly net worth and income reports. I liked that over time a community developed of other bloggers who were sharing this type of personal information, and that developers created tools like NetworthIQ that made online personal financial reporting much easier. The result of having all these data is the tendency to compare. Strangers would look at my balance sheet, and depending on the year, would wonder why the numbers were so low for someone my age working in a professional career, or would wonder why the numbers were so high for someone my age who spends most of his time writing online. I can take the criticism, but every once in a while, someone would get discouraged because they were comparing the numbers to his or her own life.
Similarly, and I’ve even written about this before, researchers have published studies which break down respondents into age groups and offer each group’s average net worth. This is another false comparison. You can’t just compare your net worth to some average based on age groups. There are many more variables that come into play. In some cases, a comparison might present some motivation, but that’s certainly not a universal response.
The number doesn’t tell the whole story, as we can see from an analysis of the Bidens’ finances. For someone with a net worth of $50,000 and no debt, on the surface it might seem like they might want to be more like Joe Biden and his net worth of about $215,000. His level of debt, however, is nothing to aspire to. The Bidens can presumably handle their debt with such a secure future, but that’s attributable to human capital, not financial capital.
Human capital may be hard to define, but in a nutshell, it’s your potential for future success. What would be the state of your wealth (or lack thereof) if you consider human capital in addition to your balance sheets?