“What’s your net worth?”  

Ask any one of the more than 1 million students that will graduate from college this spring, and the answer is bound to be within shouting distance of zero. 

On the plus side of the balance sheet might be a car and a checking account, but on the negative side is likely student loan debt, possibly some outstanding credit card balances, and then, of course, the loan used to pay for that aforementioned car.

But to say that newly minted college grads have no worth is manifestly absurd. What about the value of their degrees, which carry price tags ranging from tens to hundreds of thousands of dollars? Clearly, credit must be given for their education, though it would be incorrect to value this at its cost.  What counts is what students do with these degrees.

Unlike the value of cars, which can be easily looked up in the Kelley Blue Book, or publicly traded stocks that are assessed continuously, the value of human capital is subjective and elusive. One approach is to consider what human capital – the composite of a person’s education, skills, and experience – can earn in the marketplace over a lifespan of employment.

There’s actually a mathematical formula for human capital based on this approach, which is very similar to one that is used to evaluate the intrinsic value of any investment.  The key variables are current earnings, expected annual growth of earnings, number of years for earnings generation, and the associated risk. A nifty online calculator for this valuation, developed by the economist Moshe Milevsky, is available here

Plugging in some numbers for just a few minutes can show the tremendous amount of possible variation in the results. Nevertheless, the formula provides important guidance on how young adults embarking on a career can powerfully influence the financial trajectory of their lives.

With that in mind, here are some strategies for the newly degreed to consider

1. Do your homework about the salary ranges for any particular career, and be prepared to negotiate. 

College grads know how to do research, and it’s important to keep this skill sharp when it comes to evaluating job prospects. Knowing the pay range for a given position, in a given industry, in a given geographical location, is essential to being able to negotiate for a good starting salary – and hence for higher lifetime capital. Don’t forget to factor benefits into your calculation, and get as much information as possible before actually interviewing for a job.  Without this information, you risk selling yourself short – a mistake that can cost you a huge amount of human capital over your lifetime.

2. Learn the expected growth rate for that salary. 

This rate will be a function of two factors:  the growth prospects for the industry and your own performance. Think ahead about the industries you are considering: How will technology, global trends, and demographic changes impact these fields? On a more micro-level, what are the performance criteria by which you will likely be measured? Pay attention to both these factors to increase your overall worth.

3. Remember that high earnings often entail high risk. 

Yes, a career in venture capital or professional sports can pay handsomely, but there is also a significant downside to these occupations – namely, the high and frequent turnover. Consider, too, that even once-secure jobs may now be considered higher risk. Working for the federal government is one notable example.

4. View your worth as a matter of time.  

The human capital equation is based on a lifetime projection of earnings.  Naturally, the longer the projection one allows for work life, the higher one’s value. This means that any time spent out of the work force – perhaps to have children, to care for elderly relatives, to go back to school, or to retire early – can significantly decrease your human capital. Decisions about exiting the workplace must be made with full awareness of the costs – not just of foregone earnings, but also benefits, retirement plan contributions and Social Security credits.  In short, these exits – while in many cases worthwhile to the quality of our lives – nevertheless need careful planning and financial management. 

Important, too, is protecting yourself against involuntary downtime from your job, as in the case of an unexpected illness.  This makes disability insurance a must for those entering the workforce.

Few college grads appreciate the enormity of their potential human capital and its impact on their financial welfare over their lifetimes. They may assume that thinking about investment will come later, once they deal with debt and find a place to live. In reality, however, they are their own largest, most productive investment. Starting right away to manage the returns and minimize the risks of this investment is, from a financial planning perspective, every bit as smart as getting that college degree.

Think you’re starting out with nothing to invest? Think again!