III - " : " (7-8 2010 )

Korolyova N.

Donetsk National University of Economics and Trade named after M. I. Tugan-Baranovsky , Ukraine


Conventional economic theory considers households savings in the financial and material forms. In other words, it is tangible assets only that meet requirements to be acknowledged as savings per se. This division seems to be incomplete because it slights most valuable type of wealth accumulated and stored in intangible form. It proves to be a universal truth that in the periods of economic decline people are mostly concerned in securitizing their savings in order to keep their value constant rather than in earning income on these assets. By entrusting money to financial institutions one leaves the fate of his/her financial well-being for the mercy of prudency of a third partys commercial decisions. In this sense, investing in education and self-improvement is becoming increasingly reliable instrument to keep a household financially afloat as society is shifting to the information stage of its development.

The article aims to ground the thesis that investing temporarily free financial resources into intangible assets is one of the best ways to maintain the value of households wealth. To reach this goal the author maps out the types of intangible savings, and explores their properties versus those of putting ones money into financial instruments or material objects. We conclude that it is intangible form of savings that can provide safety, reliability and profitability to their owner both in good times and the bad ones. Simultaneously, augmentation of both specific and fundamental knowledge appears to be the key pre-condition factor for human capital accumulation; the core moving power starts to spin-off the knowledge-driven economy.

According to the form of assets there are tangible and intangible savings. The latter can be divided in respond to the type of capital their accumulation consequently creates: social, intellectual, and human.

Social savings mean strengthening social communications through investments in maintaining existing and establishing new acquaintances, building alliances within social networks, improving or altering ones public reputation, etc.

Intellectual savings actualize in the form of an authors rights, patents, and licenses. The core pre-condition for their emergence is a gradual augmentation of human savings.

Human savings are embedded in all kinds of professional knowledge, skills, and experience which, being applied, have a power to transform into added value and reveal then in increased financial and material wealth.

We can classify human savings according to the type of abilities people aspire to improve by investing in education:

- investment in professional skills (to get a university degree, to complete a post-graduate course, to upgrade existing or gain a new qualification);

- investment in personal skills aimed to develop specific traits of character, to improve communication, presentation, negotiation, etc. skills.

Similar to any form of assets, intangible assets possess a set of certain properties: value, longevity period, profitability, liquidity, riskiness/reliability. Nevertheless, by contrast to financial and material wealth, a clear definition of the value that intangible saving parameters may gain is contingent with difficulty. For instance, educational savings can be measured by:

- historic value money spent on getting education, completing a course, training, etc.;

- market value, i.e. the average supply price of educational services in the market at a given period of time;

- potential sale price, i.e. future anticipated income expected to receipt provided the knowledge and skills obtained are applied in practice.

As for intangible savings longevity period its unambiguous validation is complicated, too. In our view, the notion can be considered in three aspects: 1) acquisition term period of time needed to acquire necessary knowledge, practical skills, and experience; 2) shelf-life period of time during which knowledge and skills remain valid, up-to-date, and sought-after; 3) return on investment period. While in terms of acquisition time intangible savings most likely divide into short-term (courses and training of less than a month duration), medium-term (from month to 1 year), and long-term (from 1 to 5-6 years), shelf-life of educational savings appears to be a subject of unreliable prediction. It is a function of a set of variables divergent and numerous including scientific discoveries, introduction of new technologies, global, national, and regional socio-economic development trends, etc. Return on investment period varies within regions and countries. University students in the United States , for instance, have their tuition paid back in 11 years after graduation on average; in Ukraine it approximates to 8 years as a rule.

Nevertheless, under a certain probability rate we can assume the presence of some regularity in association between educational savings and their shelf-life. Particularly, the narrower, more specific knowledge is, the more short-dated it a priori will appear. The sharp edge of this self-evident observation lies in its address to skyrocketing speed of the technological progress. For example, programming languages like Modula, Oberon, Component Pascal, Active Oberon, or Zonnon popular in the 1980s and 90s are least sought-after today, and those like Borland Pascal or Turbo Pascal have hopelessly sank into the ocean of obsolete, to mention a few [1].

By contrast, investments in fundamental knowledge that high school provides mainly the ability to learn in its broadest meaning incur a far more longevity period. We can draw a similar conclusion regarding investments in personal characteristics of a human being such as communication, leadership, team-work, organizing, planning, goal-setting skills, stress-resistance, creativity potential disclosure, etc.

Intangible savings are used to produce streams of revenue that often are associated with particular costs or outflows. In an effort to earn a college education, students around the world find themselves facing a mounting debt. According to data recently released by the Federal Reserve, American students owe almost $830 billion in student loan debt. This number is growing, both in the United States and abroad [2]. The majority of institutions have stopped giving out loans. The study conducted by Sallie Mae and Gallup (a company that has studied human behavior for more than 70 years) from March through May of 2010 showed that parents had paid 47% of the college costs for the 2009-2010 academic year, and 25% of tuition had been at the expense of students through income, savings and loans [3]. In the United Kingdom tuition fee will rise from the present ?3290 to ?7000. For every ?100 a student borrows to defer the payment of tuition fees until after graduation, the state pays about ?35.The government can no longer afford the current funding system because it is unsustainable with record numbers of students applying for universities [4].

Shortcuts of loans coupled with increasing tuition-fees worldwide inevitably raise a logical warning flag: is higher education really worth all that effort? The answer is anything but ambiguous: it is, especially in the recession. One might argue that intangible savings profitability and liquidity are in line with the phase of economic cycle. This means strong correlation between labor market supply and the possibility to convert skills into money equivalent, i.e. liquidity. Nevertheless, even in the upheaval of economic downturn university graduates are more likely to be hired than high-school graduates. According to the College Board ( Princeton , New-Jersey) report between 2008 and 2009, high-school graduates saw their unemployment rates rise from 5.7 to 9.7% while unemployment for university graduates rose from 2.6 to 4.6% only. Over the past 20 years, this pattern has held steady: regardless of the state of economy, high-school graduates were roughly twice as likely to be unemployed as university graduates. In terms of pay, the gap between the two has grown. In 1982, university graduates earned 50% more than high-school graduates. By 2009, their wages were almost 100% higher [5].

Secondly, if we compare average annual university tuition fees to expenditures on cigarettes smoking the former will not seem that exorbitant any more (see the Table 1).

Table 1. Comparison of university tuition-fees and expenses on smoking addiction in cities around the world in 2010, U.S. dollars


Cost of a pack of cigarettes

Annual cigarette expenditure for

Average annual university tuition

Percentage of annual tuition fee a smoker puffs away during the year, %

1 pack per day

1.5 pack per day

New York





44.5 - 66.8


7 - 10

2555 - 3650

3833 - 5475

5195 (?3290)

49.0 105.0

New Jersey





25.9 - 38.8






14.5 - 21.8




548 657


21.0 37.0

Source: drawn up by the author on the basis of the following e-resources:

http://www.nyc4all.com/ , http://www.ucheba.ru/ , http://www.tobaccofreekids.org , http://www.euromonitor.com/ , http://www.graduateshotline.com/costs.html , http://www.cdc.gov/

According to the evidence of the data represented, the one who smokes 10 packs a week (1.5 pack a day) puffs away 2/3 of his/her annual cost of education in New York. For the city of London this correlation is even more impressive covering the whole cost of the annual tuition-fee. It should be underlined that such comparisons are extremely relevant in terms of our research considering results of the Global Youth Tobacco Survey conducted by the Centers for Disease Control and Prevention in 2008. The public opinion poll revealed 21% of boys aged 13-15 and 17% of girls currently smoking cigarettes in Europe , and another 33% of teenagers thinking of taking it up. In the U.S. the situation is not much better: 1/5 of boys and girls currently smoke cigarettes, and another 20% of respondents currently smoke other tobacco products [6]. It is also worth mentioning that the figures presented leave alone the cost of addiction to such unsavory habits as drinking alcohol or gambling, which are even more expensive.

The research conducted enables to draw the following conclusions.

Household wealth effects analyses usually omits intangible savings for latters expensiveness and difficulty to be measured and quantified. It is the intangibles though, that are of the greater value because they induce benefits in virtually every conceivable facet of households financial safety net operation. Intangible savings in the form of education expenditures contribute to peoples well-being at the micro-, macro-, and global level.

Households benefit from self-investment in five ways:

- Possibility to earn money in wobbly periods of economic distress by switching to a different field of engagement in case of unemployment (skills for which were obtained during professional courses, qualification trainings, personal trainings, or attending the classes of ones hobby-like interest). In this sense educational savings appear in the form of a so-called financial safety pillow a certain type of buffer-stock savings that increase households professional and personal mobility and independence;

- High reliability. Knowledge and skills are independent of prudence of a third partys managerial decisions. Unlike alienated financial instruments, this type of assets is not an objectified one; it makes an integral part of their owner.

- Low devaluation risk. Inflation decreases the value of money spent on education, while the gained knowledge and skills themselves maintain their value on a constant level during the same period of time;

- Relatively low acquisition cost at high payoffs afterwards, hence, high efficiency;

- Establishment of a sound basis for future carrier, and stable income.

Nations and society on a whole benefit from investment in intangible assets because augmentation of the latter creates a sustainable platform for human capital accumulation the core development force of a knowledge-driven global economy.

References :

1. . [ ]. : http :// vedenin . by . ru / lang . html

2. Shai Reshef . Lowering the price of higher education. Here and Now. (137 966 bites). < http://www.huffingtonpost.com/shai-reshef/lowering-the-price-of-hig_b_714574.html >.

3. How America Pays for College 2010: A national study by Sallie Mae and Gallup [Electronic textual data]. (17156 bites). - Available at: <http:// www.SallieMae.com/howAmericapays >.

4. Shepherd , J. Tuition fees hike will spell disaster for universities, coalition warned [Electronic textual data] // The Observer . [ 12 September 2010 ]. (196239 bites). Available at: http://www.guardian.co.uk/education/2010/sep/12/tuition-fees-universities-funding.

5. Education Pays 2010. The benefits of Higher Education for Individuals and Society [Electronic textual data] // College Board Advocacy & Policy Center . (4.11 Mbites ). Available at: <http://trends.collegeboard.org/files/Education_Pays_2010.pdf>.

6. Centers for Disease Control and Prevention. Global Youth Tobacco Survey (2008) [Electronic textual data]. [Retrieved on 04/10/2010]. - Available at: <http://apps.nccd.cdc.gov/GTSSData/PDF/GTSS_tobacco_atlas.pdf > .