Income and Inheritance

Economic net worth

Next time you are at the airport or the bus terminal, look around and experience the sights and sounds of the human condition. The nattily dressed Burl Ives-looking septuagenarian in a homemade sweater vest could be wealthy, but maybe not. Same with the 40-year-old tanned guy in board shorts and suede Vans with two kids in tow. “The mosaic of America,” some might say.

How much of a contribution do you make to your living standard? We call it your human capital. Ability, desire, and talent to work in positions valued by the labor market differentiate the financial prospects of Patrick from Taylor Swift and Kate Blanchett to Kate and Jamie. Age, health, and longevity matter and the crafty skill to know when to negotiate a pay raise is an underestimated art. Human capital declines over time and approaches $0 at retirement. Living life then means having saved supplemented by social security retirement checks.

What about wealth?