Why Total Wealth Planners Are Closer to Economic Reality Than the Mainstream
For over two centuries, economists have been telling us something the financial services industry still struggles to hear:
Wealth is created by people, not products.
A recent academic review of human capital theory traces this insight from Adam Smith through to modern growth economics. Its conclusion is unequivocal: human capability—skills, health, judgement, learning, and adaptability—is the primary engine of income, resilience, and long-term prosperity.
[Source: HUMAN CAPITAL APPROACH: HISTORICAL DEVELOPMENT AND MODERN APPROACHES by İbrahim Ethem AKYILDIZ]
For practitioners aligned with the Academy of Life Planning, this is not radical thinking.
It is economic common sense—finally catching up with practice.
From Adam Smith to Today: A Forgotten Truth
Adam Smith argued in The Wealth of Nations that all wealth originates in human effort—specifically in the skill, dexterity, and judgement applied to work. Later economists refined this idea, but never overturned it.
What changed was not the theory.
It was the industry.
As financial services professionalised, the focus drifted:
- From capability to capital
- From agency to allocation
- From people to products
The human being became a risk profile.
The plan became a spreadsheet.
Human capital theory never supported this shift.
What Human Capital Theory Actually Shows
Across multiple schools of thought, the evidence is consistent:
1. Income Follows Capability, Not Capital
Education, skills, and experience explain income differences far more reliably than access to financial assets alone. Returns on learning often exceed returns on physical or financial capital—especially over a full working life.
2. Time Is the Most Important Economic Variable
Economists such as Jacob Mincer and Robert Lucas demonstrated that lifetime income is shaped by how people allocate time:
- Time spent learning
- Time spent working
- Time spent recovering and adapting
Short-term income sacrifices often produce long-term resilience and growth.
This is not lifestyle theory.
It is labour economics.
Learning by Doing Beats Predicting the Future
One of the most important (and underused) insights in economics is learning by doing.
Experience itself compounds.
Judgement improves through action, not abstraction.
This directly challenges:
- One-off “set and forget” financial plans
- Over-reliance on long-range projections
- The illusion that certainty can be engineered upfront
A living plan—reviewed, adjusted, and owned by the client—mirrors how real wealth is created.
Financial Capital Is Secondary—And Always Has Been
Later economists, including Schultz, Romer, and Benhabib & Spiegel, showed that:
- Financial capital faces diminishing returns
- Human capital does not
- Long-term growth depends on the quality of people, not the quantity of money
This matters for practitioners, because it reframes risk entirely.
Risk is not primarily market volatility.
Risk is fragility of the person.
Clients with strong human capital:
- Recover faster from shocks
- Adapt more effectively to change
- Make better financial decisions under pressure
No asset allocation can substitute for that.
Inequality Is Not a Moral Failure — It’s a Planning Failure
Human capital theory also explains income inequality without moralising it.
Differences in outcomes largely reflect:
- Unequal access to learning
- Unequal opportunity to convert skills into income
- Unequal support during transition points
This is where Total Wealth Planning becomes quietly corrective.
By restoring agency, capability, and choice, planners are not being ideological.
They are addressing the real drivers of economic outcomes.
What This Means for AoLP Practitioners
If you practise holistically, this research does not put you on the fringe.
It places you:
- In alignment with the foundations of economics
- Ahead of an industry still optimising the wrong variable
- On the right side of long-term relevance
You are not “moving away” from financial planning.
You are returning it to first principles.
A Final Reflection
Human capital theory has always told us this:
Money does not make people wealthy.
People make money valuable.
Total Wealth Planning is not a rejection of finance.
It is finance put back in its proper place.
If that resonates, you are already practising the future of this profession.
Source: HUMAN CAPITAL APPROACH: HISTORICAL DEVELOPMENT AND MODERN APPROACHES By İbrahim Ethem AKYILDIZ.
Academy of Life Planning 