It’s always a “smart” investment strategy…
When trying to establish an individual’s net worth, most people think first and foremost about financial capital—how much someone’s house is worth or how much money he or she has in the bank. There is, however, a second component to personal and professional value that’s a little more difficult to measure: human capital.
Human capital represents the sum of a person’s knowledge, education, skills, abilities, and experience that can create value for this person in the future. In this sense, investing in human capital is very similar to investing in other, more tangible, types of capital. When you buy a mutual fund for a certain price, you buy it because you hope it will increase in value and you will make money in the future. When you pay a certain price for a college education, you do so because this will provide you a very valuable set of skills that will increase your value and help you make more money when you enter the job market.
There are multiple examples of human capital in your everyday life. Your doctor, for example, invested time and effort in medical school to build his knowledge of the human body and to acquire the ability to perform complex surgeries: This is his human capital. The colleague sitting next to you at work is taking night classes in order to apply for a managerial position: She, too, is building her human capital.
Education and training: In general, the two most important contributors to human capital are education and training. It is widely acknowledged that, for the most part, people with a college education have higher salaries than high-school graduates; Ph.D. and master’s degree holders can earn even more. Once you have graduated from school, however, it doesn’t mean that your learning process has to stop. You can continue to learn through on-the-job training or on your own. Going to school, learning a foreign language, building a network of professional relationships—these are all examples of investment in human capital. In today’s “knowledge economy,” this is extremely important.
Medical care: There are also other, more indirect components. If you don’t take good care of yourself or you don’t have access to quality medical care, the consequences can severely impair the human capital you worked so hard to build. You won’t be able to perform to the best of your abilities if you are sick, or if you are feeling depressed or unmotivated. For this reason, improving physical and emotional health can also be a way to invest in human capital.
Migration: For a long time, people have moved from less-developed to developed countries searching for a better life. Today, more than ever, globalization encourages international movement; from Mexico and South America into the U.S., from Eastern Europe and North Africa into Western Europe, people move to go to school, work, and build a life somewhere other than their home. This continued movement is based mainly on the belief that developed economies offer better potential for personal development and a better set of opportunities than developing economies. For this reason, migration is an important element in human capital development. Even more interesting is perhaps the fact that the economic development of a country seems to be closely related to its investment in human capital.
Take a moment and think about something you could do (and would like to do) to strengthen your human capital. Even small steps count, like reading a book about a subject that’s unfamiliar to you, or taking an online training course. After all, if you are careful where you invest your money, you should be even more diligent about investing in yourself.