How to invest in yourself

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For a long time people were thought of as “resources”, lumped together in a generic mass of labour that had an economic purpose.

Many organisations still think of people in this way – and it’s in the title they give the department that deals with this task – Human Resources.

Is this the right term to describe this activity now?

The Economist has an interesting article on Gary Becker, the Nobel prize winning economist, who in the 1950s began to articulate a theory of economics based on “human capital” – investments in things that raise your own value.

Becker explains that a form of capital like a physical asset is something that yields income and other useful benefits over time.

Less tangible investments such as education, health or habits can also yield income and other useful benefits – and this is what economists refer to as human capital.

The most important ways to create human capital are through investing in education, training and health.

Human capital is something that an organisation cannot separate from you.

You can’t be forced to give up your knowledge, skills or health in the same way that your house, car or bank savings can be taken from you.

This creates a quandry for organisations such as banks or employers.

A bank may be happy to lend you money for a house, knowing that they can always get the house if you fail to make repayments, but they may be less happy to lend you money for an education.

Employers may be happy to invest in job-related training that makes you more productive on their equipment or technology but less willing to invest in generic education that makes you more marketable.

This is why many investments in human capital have to be funded by people themselves, rather than relying on others to fund it for them.

One form of investment is “opportunity cost”, the earnings forgone by someone who goes on to complete advanced education. Many others rely on savings for later education.

It is also important to value the total returns from human capital accurately.

One form of return is income – more money – which seems all important because it is so visible.

But you also have other useful benefits – more interesting work, more choice, perhaps more opportunities, that arise as a consequence of increasing your human capital.

You need to take into account all these potential returns as you decide where and when to invest in yourself.

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