www.financialplanningforwomen.org Human capital refers to knowledge, skills, and abilities acquired by an individual, traditionally through education and work experience. It is uniquely possessed by each individual and can be enhanced by continued education and job-related training (Becker 1964). Human capital is both an input into production and a component of wealth. As Women Financial Planners in Los Angeles a production input, it is exchanged in the labor market for wages. (Human capital specific to home production is not traded in the labor market, but is an important factor in home production.) As a component of wealth, human capital is measured as the present value of future earnings and represents remaining lifetime earning potential.  The level and type of human capital, as well as the allocation of it within the household, determine the level and type of risks to which a family is exposed. For example, workers with low levels of human capital are at greater risk of loss of employment when low skilled jobs are replaced by technology or moved overseas. Divorce planning Los Angeles Similarly, any decline in demand for labor within an industry can put those with specialized human capital within that industry at risk. An individual with very specific job training may find it difficult to transfer that type of human capital into other employment and may experience functional unemployment.  Although the value of a college education, as it relates to increased income, has been known for some time, the results from these analyses demonstrate that prior work experience has a separate impact that doesn’t get recognized as much as a formal education. This supports Becker’s (1964) human capital theory, which posits that investments in human capital (whether via education or on-the-job training and experience) increase expected future lifetime earnings. Figure 3 demonstrates that for almost all levels of education, high levels of prior work experience boost a woman’s earned income levels by approximately $20,000 per year. The model successfully predicts a large amount of the variance in earned income for divorced women in their 30s (34.7 percent of the variance in 1996) and in their 40s (26.1 percent of the variance in 2004). However, the model does not predict nearly as much of the variance in total net family income (TNFI). For women in their 30s, only 1.7 percent of the variation in their TNFI was predicted by this model. Whereas for women in their 40s, 7.7 percent of the variance in TNFI was explained by the independent variables (human capital and demographics). Although diversification has been widely applied to the management of financial portfolios, it has not been readily applied to human capital portfolios. In fact, economic theory argues that greater returns can be obtained through specialization and exchange than through diversification of human capital. While a financial planner is typically unble to manipulate a client’s human capital portfolio, it is important to understand a client’s human capital risk exposure since it affects the overall portfolio. The individual with the greater human capital in the relationship can afford to take more risk. High levels of risk in the human capital portfolio may necessitate an adjustment elsewhere. visit this website
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