When we think about wealth, many immediately think of financial capital —savings, investments, assets. However, there's another crucial component in the wealth equation that is frequently overlooked in traditional financial planning: human capital.
Human capital involves your potential to earn income in the future, your skills, and your personal growth. It is a vital yet often neglected aspect of wealth management. The CFA Institute neatly defines total wealth as a combination of financial capital and human capital, minus lifetime liabilities.
Total Net Wealth = Financial Capital + Human Capital – Lifetime Liabilities
This notion is explored in depth in the CFA Institute's 2024 study, Lifetime Financial Advice: A Personalized Optimal Multilevel Approach. The study underscores the significance of human capital alongside financial assets.
George Kinder, known for pioneering the life planning movement, famously stated, “Life Planning is Financial Planning Done Right!” To me, life planning represents a comprehensive approach to financial planning. It goes beyond managing financial assets to include life goals and the development of human potential, creating a truly holistic wealth plan.
Why Human Capital Matters
Many financial planners focus primarily on financial capital—how to grow and save the money their clients have already earned. However, they often neglect the most crucial element—the client themselves. Your talents, skills, and future earning potential—what we call human capital—are paramount to building a well-rounded financial plan. Recognising how you generate income, grow professionally, and enrich your capabilities is essential for comprehensive wealth management.
As people live longer and face a rising cost of retirement, the UK government is currently considering raising default pension contributions to help people fund their future retirement. However, with many also still grappling with the highest cost-of-living increases in decades, saving more may prove a challenge.
Instead of just concentrating on financial capital, perhaps we should also give more importance to nurturing human capital as we enter our “golden” years. By using skills and experience to engage in flexible, part-time work that helps keep the mind sharp, maintains social interactions, and provides a sense of purpose, individuals can support their preferred lifestyle as they age, while continuing to enjoy a fulfilling and balanced life. Support for navigating career transitions later in life—by addressing age discrimination, promoting ongoing learning, and encouraging flexible working options—could make a significant impact.
Understanding Human Capital
At its core, human capital is the present value of your future earnings. It represents your intangible assets—your skills, knowledge, health, relationships, and personal attributes.
To break it down further, the McKinsey Health Institute’s whole-person paradigm describes human capital across four dimensions:
Mind: Your knowledge, mindset, and intellectual growth.
Body: Your health, skills, habits, and efforts toward wellbeing.
Heart: The relationships you nurture.
Spirit: Your values and sense of purpose.
Economist Alfred Marshall once declared, “The most valuable of all capital is that invested in human beings.” Nobel laureate Gary S. Becker emphasised that investing in human capital can be more complex than investing in financial assets. Therefore, developing strategies to cultivate human capital alongside financial capital is essential.
As suggested by a recent Harvard Business Review article titled Use Strategic Thinking to Create the Life You Want, we can take lessons learned from corporate consulting and apply them to personal development. Planning your life is about more than managing what you have—it’s about maximising your potential.
In fact, developing human capital has a far greater impact on lifetime cash flows than simply managing financial assets. When you’re growing in mind, body, heart, and spirit, you’re building a foundation that supports long-term financial wellbeing. At Planet Positive Planning we utilise the framework set out by the Academy of Life Planning, where we take a holistic approach to helping individuals develop their human capital, alongside their financial goals.
Impact Investing for Human Capital
We also aim to create a personal strategy that's good for both you and the planet. Al Gore famously described the sustainability revolution as “the single biggest investment opportunity in history” — this applies not only to the investment of financial capital, but human capital too.
Transitioning our global economy from a heavy dependence on fossil fuels, to one that thrives sustainably within Earth's safe limits will demand a tremendous investment of human effort and ingenuity. This shift represents not just a challenge, but a historic opportunity to reshape our future, for which the application of human capital will be vital.
As an example, Project Drawdown provides an inspiring blueprint of what this shift could look like. Life planning can help you identify where your unique set of intangible assets best fit into this vision, and give you the agency to take meaningful action.
Why It Matters
Incorporating human capital development into financial planning means designing a life that’s rich in every possible way. Whether advancing in your career, improving health, strengthening relationships, or finding deeper meaning, life planning offers a comprehensive path to wellbeing.
The world is changing, and so should our approach to wealth. Human capital is central to generating and sustaining wealth. By valuing your human capital, you’re not just managing wealth—you’re creating a life filled with possibility and growth.
Take the Next Step
Interested in auditing your current human capital? Spend five minutes completing this free online human capital diagnostic tool from the London Business School. Try it now!
(Images are AI-generated)
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