The Rational Reminder Podcast · Thursday, July 9, 2026
Dr. Paul Kaplan emphasizes the significance of human capital as a key asset in an individual's economic balance sheet, alongside financial wealth. He explains that this balance sheet, encompassing assets and liabilities including human capital and future consumption needs, is crucial for determining optimal asset allocation within his life cycle model.
“On the asset side, they have their financial wealth, but they also have their human capital.”
“And on the liability side, they have what we call their liabilities, which is the present discounted value of future non-discretionary consumption, and then their net worth.”
“And so that entire balance sheet gets fed into what we call our net worth optimization model, which then determines the asset allocation.”