When making more money decreases your net worth - per CFA????

[CFAtesttaker]

I’m in Reading 12: Risk Management for Individuals and on page 385 of the book.

I understand the equation for estimating the present value of human capital on page 384, but I do not understand their example on page 385.

In the first example, wages increase every year by 2% leading to a present value of human capital of $211,997.

In the second example, wages stay stagnant every year, leading to a HIGHER present value of human capital of $217,371.

LOL wut??? When does making more money each year mean you are actually worth less, holding everything else equal? Why in the world would you discount your wages by the growth rate?

So according to the CFA, to maximize my human capital, I should eliminate wage growth and try not to make more money each year. kk I’ll tell my boss next year to not increase my wage as it lowers my human capital because it increases my discount rate.

[biuku]

@CFAtesttaker

When does making more money each year mean you are actually worth less, holding everything else equal? Why in the world would you discount your wages by the growth rate?

So according to the CFA, to maximize my human capital, I should eliminate wage growth and try not to make more money each year. kk I’ll tell my boss next year to not increase my wage as it lowers my human capital because it increases my discount rate.

The wages are not discounted by the growth rate. In the first example, 4+3=7. In the second, 2+2=4.