From Here to Financial Happiness

Day Twenty Eight The Human Touch

If you just graduated college, you might have an alarming amount of student loans and perhaps also credit card debt. Yet, arguably, you are rich, because ahead of you lies four decades of paychecks. According to the Census Bureau, the estimated lifetime earnings of a college graduate average $2.4 million, figured in today's dollars. Economists refer to this income‐earning ability as our human capital, and it has four key implications for how we manage our money:

• We can borrow against it. Taking on debt early in adult life – especially to pay for college and to buy a home – can make financial sense. The money borrowed allows us to buy items we can't currently afford, plus we know we have many income‐earning years to service these loans and get them paid off by retirement. But we should be careful not to overdo it: We don't want to borrow more than we can comfortably repay, and we should be careful to use debt to advance our financial lives, not pay for extravagances we'll likely later regret.
• We need to protect our human capital. In case we can't work because of injury or illness, we should have disability insurance. If we have a family that depends on our paycheck, we probably also need life insurance. What if we lose our job? That's the chief reason to sock away some emergency money.
• Our human capital provides the dollars we need to set aside for retirement. In essence, our working years are about taking the income kicked off by our human ...