Human Capital

The economic value of a person's skills, knowledge, health and experience, reflected in their capacity to earn over a working life.

Example

50,000 a year for 40 years has a present value of about 1,156,000 at a 3% discount rate.

For most people early in their careers it is their largest asset, but it is concentrated, cannot be sold and depends on health.

Present value — What an amount of money arriving in the future is worth today, once discounted at a chosen rate.
Earnings Premium — The additional income associated with a qualification, skill or experience compared with not having it.
Skill Depreciation — The decline in the economic value of a skill over time as tools, industries or demand change.

For most people, their future earnings are the largest asset they own — Human capital - the value of your ability to earn - is usually worth far more than a young person's savings. Education, skills and health are ways of investing in it, with real costs and uncertain returns. (9 min)
The return is the earnings difference, not the certificate — A self-investment pays off through higher earnings, better opportunities or more working years. Measure it as a difference over time, after tax, against what it cost. (11 min)
The real price includes the income you give up and the years the skill stays valuable — A self-investment's full cost is fees plus lost earnings plus time. Its value depends on how large the earnings difference is and how long it lasts before the skill ages. (12 min)
The one asset with no counterparty, and the one you cannot diversify easily — Investing in skills, knowledge and health strengthens every other part of a financial life. It works best alongside savings, spread across durable and specific skills, and with health treated as the base it all rests on. (9 min)