human capital

Letters to Our Children #5: Your Human Capital

© Can Stock Photo / kasto

One investment supersedes all others: invest in yourself. Renowned investor Warren Buffett promoted this idea in a 2017 interview. It cannot be taken away, it adjusts for inflation, it helps you have a more interesting life and earn more money.

Interestingly, Buffett’s prime example of this is not an Ivy League education, but a simple public speaking course, one that many thousands of others have also pursued. Early in life he realized a crippling anxiety about public speaking would impair his career. Beginning long ago with the help of Dale Carnegie, he is now at ease in front of tens of thousands of shareholders, high powered interviewers, presidents, other business leaders, or any other situation required of him.

When we invest in our selves, we are seeking to improve our value to others. The more valuable we make ourselves, the more an employer or customer will pay us. The collection of attributes that create this value are called human capital.

Many aspects of human capital are free. Years ago I became acquainted with a senior officer of a large publicly traded company whose most obvious super power is kindness. After he moved on to a leading role elsewhere, people familiar with him always remembered that trademark feature, and how he had helped them in the past, how he made them feel.

Kindness is free. So are dependability, punctuality, being true to your word, enthusiasm, diligence, and all the other traits we seek when we deal with others. Others desire those same traits in us.

Some aspects of human capital require time and money, sometimes lots of both. Think of the education and training required of surgeons, for example. Educational paths and career planning are beyond the scope of this essay, but the value and wisdom of all of your choices ultimately comes down to whether you figure out how to add value to the rest of society.

We have heard the idea of “follow your passion” debated back and forth. Understand the difference between doing what you are passionate about, and being passionate about what you do. One of them has a wider range of opportunity than the other.

The source of our wealth is our earning power, which arises from our human capital. In future letters we will talk about how to manage the fruits of your human capital, but it all starts here.

Clients, if you would like to talk about this or anything else, or suggest ideas for future letters, please email us or call.

Letters to Our Children #1: About Money

© Can Stock Photo / photography33

This is the first in our series, Letters to Our Children. It is intended to be a guide to money and financial planning. Those things happen in the context of life, so we need to begin with a broader focus.

Money is really handy. Those who have it tend to live longer, happier lives. They are able to do things that those without money cannot. In a variety of ways, money can be traded for time, which is what life is made of.

Just as a vehicle may be used to get back and forth to work, or as a getaway car by criminals, money can also be used poorly. We believe money should be invested wisely and spent well.

One of your most important forms of wealth is not usually thought of as wealth. Your human capital is your ability and willingness to employ marketable skills for customers or for an employer. Human capital translates into earning power – for example, physicians earn more than fry cooks. A portion of what goes into human capital is free: your attitudes and habits.

Human capital only has value when somebody pays you to put it to work. It is helpful to keep in mind that all worthwhile enterprises are in the helping profession. The grocer helps people feed their families. The car dealer helps people get where they need to go. The surest path to more income and wealth is to do a superior job of helping more people. The best career insurance is to help your employer help more people.

For now, we’ll leave it like this: money is useful, and it is helpful to understand how to make the stuff. Coming editions will focus on using it, protecting it, and managing it to meet your goals and objectives.

Clients, if you would like to recommend specific topics we might cover, or visit about anything else, please email us or call.