Dear Young Person: I want to talk about your biggest asset.


In financial planning we do a lot of “asset inventories”. A tally of everything of value the client owns. Cash, real estate, stocks, bonds, 401k plans, IRA’s, life insurance policies, cars, etc.
A young person may have very little of these types of assets and in fact may have more liabilities (debts) than assets.

But young people have one very important asset that those of us of a certain age are rapidly losing — Read on to learn more!


Michelle Morris, CFP®, EA
BRIO Financial Planning


Recently I was talking to a young woman in her mid-twenties about her assets. In this context I was referring to “financial assets”* which are things of monetary value that you possess. She said somewhat apologetically “I really don’t have any assets”.

But she was mistaken. Her biggest financial asset is her “Human Capital”.

“Huh?” I hear you ask.

Simply put your human capital is your ability to earn and save money which diminishes over time.

It is illustrated here:

On the left axis: “Total Economic Wealth” is the sum of your Human Capital and your Financial Capital.

Early in young adulthood Human Capital (the green shaded portion) is high. But your Financial Capital (the blue line) is low. As time goes on your Human Capital diminishes but your Financial Capital will increase if you save and invest regularly.

Eventually your Financial Capital exceeds your Human capital and you can retire and live off your financial capital.

Enjoy your youth as it is fleeting. But don’t forget to get started on your blue line ASAP. Your 56 year-old self will thank your 26 year-old self!

*Certainly young people have plenty of non-financial assets – for example the ability to read small print without glasses.

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