In so many ways, the world is discovering what advocates of asset-building have preached for the past decade: that we need to encourage saving and investment, not consumer debt and personal spending; that financial education and home buyer education are critical to success in making home ownership more accessibile; that a strong economy is built on the foundation of small businesses and human capital, not wall street wizardry.
The latest example comes from no less an authority than Time Magazine in their recent feature, “10 Ideas Changing the World Right Now.” Time‘s first world-changing idea: “Jobs are the New Assets.”
The cognition you’ve got up there in your head — your education and training — it’s worth something. We can extract value not just from our homes and our portfolios but from ourselves as well. The mechanism for extracting that value? A job. “The income you earn from working is like the stream of interest income you might get from owning a bond,” says Johns Hopkins University economist Christopher Carroll. “Think of it as a dividend on your human wealth.”
Human capital is worth quite a lot. Gary Becker, the Nobel Prize-winning University of Chicago economist, figures that in a modern industrialized economy, 75% to 80% of a person’s economic output comes from human capital (as opposed to, say, land or machinery). Of course, during the bubble years (first stocks, then housing), the noneconomists among us didn’t exactly think about it that way. “People became mesmerized by how rich they were,” says Becker, “and didn’t realize the crucial asset they had in their earning power.”
I’ll admit, I’ve always been a little uncomfortable with post-secondary education as one of the major “asset goals” for individual development accounts (IDAs). The hard assets (home ownership, small business) are a bit easier for me to wrap my head around.
In just 10 paragraphs, this article in Time makes the most convincing case I’ve heard for why Michael Sherraden and the other architects of asset-building programs were right on the money to include education (human capital) as one of the big 3 asset categories. It’s absolutely worth a read, as are the other nine ideas on the list.