The value of investing in yourself
Economist Moshe Milevsky’s book, Your Money Milestones, addresses the interaction between your employment income and your portfolio investment. Among other things, our employment income has equity like or bond like returns and our investment decisions should account for the characteristics of our employment income. In essence, human capital- the ability to generate economic value through our labor- is an often overlooked factor in how we view our financial lives.
Apropos to this point, a lot of the money chatter in my immediate circle is finding a product with yields greater than the meager returns of a money market fund. None of the suggestions I have heard involve investing or upgrading education or skill-set as a means of generating greater human capital. Yet, this is a means of improving one’s financial picture.
The much cited 2007 U.S. Census Bureau survey finds a person with a Bacholar’s degree has a means earning of greater than $25,000 over a person with a high school dipolma. An individual with a professional degree earns over twice as much with a counterpart holding a Bachelor’s degree.
What is interesting to note is that a person going from a Bachelor’s to a professional degree gets the most bang for the buck between the ages of 35-44 and 55 to 64 which tends to affirm the opinion of some that obtaining a MBA or a legal degree at a young age will not bear fruit until later in life when life/professional experience catches up with book learning.
Given that some people began to accumulate enough disposable income to invest in these two age ranges, perhaps the dialogue should not be equity or bonds, active or passive but to invest in the market or to invest in oneself?
To illustrate this point another way, in 1980, the number of female undergraduates slightly outnumbered male undergraduates. By 2007, 57% of all undergrads were female and the number of women enrolled in their first professional programs is now almost equal to men erasing a greater than 2:1 advantage in 1980. Correspondingly, the gender wage gap, while continuing to be a problem, has narrowed significantly since 1980 whereas from 1960-1980 the wage gap remained basically the same. In other words, women have advanced relatively speaking due to greater investment in themselves.
This is not to suggest the only path to increasing economic output is through obtaining a conventional degree from an educational institution. Night courses and professional development courses, many of which are subsidized or paid for by government or employers, may also be a means to increase skill set and expand networks (the often hidden benefit of skills-improvement; an old prof referred several legal clients to me over the years).
The point is that we often view our investment choices as merely Product A or Product B when the realm of human capital enhancement is often overlooked. As the educational/training industries start up anew in September, it may be time to consider allocating money to your own professional development.