Washer, 2004(1), Human Capital and the Balance Sheet

Counseling and Planning

The Journal of the
Association for Financial
Counseling and
Planning Education

VolumeĀ  15(1),

Human Capital and the
Balance Sheet

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