Career and education choice as central elements of long- term financial planning

Authors

  • Inga Timmerman Finance, Financial Planning and Insurance, David Nazarian College of Business and Economics, California State University
  • Nikanor Volkov Stetson-Hatcher School of Business, Mercer University

DOI:

https://doi.org/10.61190/fsr.v28i3.3426

Abstract

Career and education choice play a central role in individual’s long-term financial planning. In defining individual’s overall wealth, we not only consider the financial wealth (net worth), but also incorporate individual’s human capital (expressed as the present value of future earnings) as a com- ponent of the wealth function. We demonstrate that human capital accounts for the majority of an individual’s wealth portfolio in most cases for most of individual’s life. By including human capital in the traditional theoretical portfolio choice framework, we show that the choice of career and edu- cation level has a significant effect on the Sharpe ratio of an individual’s overall wealth portfolio. We conclude by providing several examples of the computations of the present values of future aver- age earnings streams for individuals of various education levels from several different occupations. The calculations are meant to illustrate how an individual can perform a simple NPV-like analysis when in the process of career planning.

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Published

2020-09-30

How to Cite

Timmerman, I., & Volkov, N. (2020). Career and education choice as central elements of long- term financial planning. Financial Services Review, 28(3), 179–200. https://doi.org/10.61190/fsr.v28i3.3426

Issue

Vol. 28 No. 3 (2020): Fall 2020

Section

New Original Submission

License

Copyright (c) 2020 Academy of Financial Services

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