Written By: Kenneth M. Washer and Srinivas Nippani
Practitioners and personal finance textbooks generally exclude human capital when constructing balance sheets although this asset represents an individual’s earning power and is liquidated over time to meet financial needs. Representing human capital on the balance sheet recognizes its importance as a factor in financial decisions. For many investors, including the value of human capital justifies an increase in the level of risk in the portfolio. The returns from human capital are often hedged with life and disability insurance which can also be incorporated into the financial statement. Keywords: personal financial statement, human capital
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