Human capital
The value of the skills and knowledge people bring to work. For an individual, the present value of expected future earnings: largest early in a career, and bond-like or equity-like depending on how secure the income is.
Where you will meet it
Human capital appears in 15 learning outcomes on the CFA syllabus. A few of them:
- Explain where the capital asset pricing model falls short
“That last point is Roll's critique — the true market portfolio, including human capital and private assets, is unobservable, so any test of the CAPM is really a joint test of the model and the proxy used for the market.”
- Explain how spending on human capital, physical capital and technology development feeds economic growth
“Human capital, the skills and knowledge built through education, training and health, raises worker productivity and helps economies absorb new technology.”
- Propose, and defend, ways to handle a family's financial risks as a whole through working life and into retirement
“Use the economic balance sheet: human capital, pension rights and financial assets against liabilities such as lifetime consumption, education, debt and bequests.”
- Construct a client's economic balance sheet and draw out what it implies for how assets should be allocated
“On the asset side it adds the present value of future earnings (human capital), expected pension income and other future inflows to financial assets and property.”
See also
Practise it
Practise human capital until it is automatic: questions that explain every wrong option.
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