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This chapter is from the book

Are College Graduates Truly Wealthier?

In the introduction, I mentioned that I ask the undergraduate students in my personal finance course two questions. The first (optimistic) question is whether they think their personal balance sheet will look better in ten years' time than it does now. The second, seemingly more pessimistic, question asks whether their present net worth is zero or even negative. The introduction to this book is largely focused on uncovering the true, but hidden, answer to that second question. As you now know, invariably, when their human capital is included, my students are wealthier than they first thought—as are you.

But if you accept the concept of human capital as the most valuable asset class on your personal balance sheet for most of your working life, you also must accept that this is a resource that is depleted over time. That is: The flip side, or corollary, of the optimistic "You are wealthier than you think" message is that if you don't save an appropriate proportion of this wealth—that is, the dividends you reap from your human capital—then you might find your total personal balance sheet to be in worse, not better, shape as you age. Remember, with each passing year you have one less year of proven reserves to draw on (returning to our oil-well metaphor). Furthermore, if you take on a disproportionate amount of student loan—or other—debt relative to the income you can expect from your chosen career, your holistic balance sheet might actually shrink over time. Accordingly, decisions about education do not just influence us at the point they are made but can affect the value of our human capital for the remainder of our lives. Indeed, education decisions are some of the most important milestones you will face in life.

So, let's take a closer look at the income, net worth, and personal debts of college graduates and compare them to high school graduates, all to get a better sense of how the education decisions you make impact your human capital. We'll conclude with some suggestions about how best to finance college education, the increasingly expensive investment in human capital.

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