Kitces | Nerd's Eye View - Human Capital

Why Saving In A Roth (Or Any) IRA Might Be A Bad Idea For Young People After All

nospam@example.com (Michael Kitces) — Wed, 23 May 2012 06:03:00 -0500

One of the foundational principles of retirement success is to start saving early. After all, the longer that money can stay invested, the more compounding growth can work in your favor; all the better if your savings grow inside a Roth IRA and avoid the grinding impact of taxation. Yet the reality is that clients really have two major assets: their financial assets, and their human capital asset. And when the client is young, the human capital asset is actually the bigger of the two by far. As a result, allocating savings towards human capital in ways that increase its value or growth rate can actually have far more impact than investments in financial assets; spending $2,000 on classes that produce a $1,000 raise in base salary can, over the next 40 years, generate nearly 20 times the wealth of merely saving the $2,000 in a Roth IRA and growing it for decades. Does that mean that clients who allocate savings to retirement accounts are actually making an inferior long-term investment?
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Questioning Whether A College Education Is Worth It - Are We Measuring The Results Wrong?

nospam@example.com (Michael Kitces) — Sun, 29 May 2011 12:13:30 -0500

As the cost of college continues to rise, and more and more students graduate in debt, and then try to enter a difficult job market, many have begun to question: is college actually worth the price? The basic formulation is pretty straightforward: by going to college, you spend 4(+?) years not in the labor force, and spend money outright on the cost of college itself; in return, you have a higher employment income for all the years that follow college until you retire, which in theory can make up the college tuition outflows plus the years of foregone earnings. However, as college gets more expensive, and the "bonus" to future salary for having a college education doesn't seem to be what it once was (especially for many liberal arts degrees), it's getting harder to make the case that college is still worth it. There's just one problem: while you earn one future income without a college education, and a higher future income with a college education, neither projection accounts for the crucial income risk of unemployment.
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The Employer Counter-Offer - Flattering Or Insulting?

nospam@example.com (Michael Kitces) — Fri, 22 Apr 2011 13:06:39 -0500

It's a familiar scenario for some: you've worked for the company for years, and feel your contributions are under-appreciated, and that it's time to look for new opportunities. You begin the job search process, and find a new employer who is excited to have you come on board, providing a nice increase in your compensation as a part of the package. Deciding to take the new offer, you go back to your original employer to break the news... only to discover that, when faced with your anticipated departure, the attitude has changed. Suddenly, your existing employer offers you higher compensation; perhaps a promotion and new title; maybe even some equity in the company. So what do you do? Are you appreciative your employer finally recognizes your value? Or insulted that it took your imminent departure to raise the issue? If you're the employer, did you just come up with a way to retain your employee, or hasten his/her departure?
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Do You Show Human Capital On the Balance Sheet?

nospam@example.com (Michael Kitces) — Thu, 13 Jan 2011 10:48:37 -0600

Planners are accustomed to dealing with most types of capital that clients may have, whether it is stocks, bonds, real estate, cash, bank accounts, or other investments. Yet the reality is that for many clients, the biggest piece of capital on their balance sheet is not the stuff that they own; it's themselves, and their ability to earn income in the future. However, as planners we rarely track and account for a client's human capital; and as a result, we may overlook the financial advice that can truly have the greatest long-term impact for a client's success.
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Good (Career) Wellbeing Promotes Good Financial Health - And It Just Makes You Happier, Too!

nospam@example.com (Michael Kitces) — Mon, 06 Dec 2010 10:08:37 -0600

In the research on Wellbeing, nothing is more important than being able to wake up every morning with something to look forward to doing that day. The impact of having high Career Wellbeing on happiness exceeds even the benefits of having good financial health. On the other hand, part of the value of having a positive career is its ability to propel your financial wellbeing forward as well! Yet the research is also clear that while career wellbeing promotes financial health, it's not about how much money you make!

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