Investing in strangers’ human capital
Family wealth advisors say you should invest in your family’s human capital. But what about investing in the human capital of strangers?
The “human capital contract” is coming to the U.S., according to “Betting on Bob” in today’s Boston Globe. How does it work? Writer Rebecca Tuhus-Dubrow explained that “…investors agree to cover the costs of college or graduate school in return for a percentage of the students’ future earnings over a fixed period of time.”
A U.S. company called My Rich Uncle tried, and then abandoned this approach, wrote Tuhus-Dubrow. Human capital contracts have been used outside the U.S. by Lumni, which is starting to apply it here, and Career Concepts of Germany.
According to “Popping the Tuition Bubble,” an article published on the American Enterprise Institute’s website by Frederick Hess and Kevin Carey, “…the smart money would go hunting for bigger returns at less expensive colleges that add great value. After all, other things equal, an investor fares much better by lending a student $48,000 over four years and collecting 4 percent of his or her future earnings than by lending that student $180,000 and collecting the same 4 percent.”
Human capital contracts could help students in this economic crunch. But do they make sense as an investment? What do you think? Please leave a comment.