To a student with little in the way of financial assets, this is a critical question for them to answer. Why? Because it provides them with the right mindset as they are coming to conclusions about their post-high school life.
From “Of Dollars and Data,” one of my new favorite blogs:
Nearly all articles written about investment and personal finance (mine included) focus heavily on financial assets despite the fact that most of your value (like mine) is likely not contained within financial assets. Most of your financial value is already contained within yourself, waiting to be unlocked over time. What I am talking about is a concept called human capital, or the value of all of your skills and knowledge. Your human capital can be thought of as an asset that you use to earn money. Understanding this concept should provide the motivation behind why you should save and invest.
He goes on to introduce the concept of present value to come up with a dollar value for human capital based on a future income stream discounted to the present using a discount factor. The example he gives is pay of $50,000 over 40 years discounted at a 3% rate yields a present value of $1.1 million. The point he makes is that human capital is an asset that eventually declines over time which explains why saving is so important.
He provides this nifty graph to display this concept: