I’m back! After ten days boating through southeast Alaska (and two days of recovery), I’m ready to think about personal finance once again. Actually, it’ll probably come as no surprise that I never stopped thinking about personal finance. Even while we were skirting among ice floes, pulling up prawns, and admiring whales, my mind never strayed far from the topic of money. (I’m not saying this is a good thing, but it’s the truth.)

It’d be all too easy for me to share another sermon about the perils of Stuff — when you spend ten days on a 38-foot boat, living out of a single carry-on bag, you come to realize how little you actually need in life — but I feel like I’ve beaten that topic into the ground over the past few months. I’m working to cut down my dependence on things, and I know that many of you are, too; let’s save further discussion for another day.

Today, I want to talk about the value of social capital.

Though I don’t mention it often around GRS, the idea of social capital is constantly lurking behind the scenes. It’s a notion that can be hard to define. In fact, rather than try to do so from scratch, I’m going to quote myself. The next section is an excerpt from my book, Your Money: The Missing Manual.

What is social capital?
You create social capital — mutual goodwill — when you volunteer at a soup kitchen, help your neighbor move a piano, have your Sunday School class over for a barbeque, or join a softball league. Any time you participate in your community, you’re generating social capital, both for yourself and for the other people involved. People with lots of social capital can find help when they need it; those with little social capital can spend a lot of time frustrated and alone.

The classic Christmas film It’s a Wonderful Life is a great illustration of social capital. Jimmy Stewart plays George Bailey, a man who repeatedly forgoes his own interests to help his friends and neighbors. It costs him — financially and mentally. When disaster strikes, Bailey decides he’s worth more dead than alive, and plans to commit suicide so that the proceeds from his life-insurance policy can set things right.

In the end, Bailey is saved when all the folks he’s made sacrifices for over the years come to his aid. Sure, it’s a schmaltzy, feel-good moment, but it’s a fine example of social capital in action. When Bailey’s brother declares that George is “the richest man in town”, he’s not joking: Bailey may no have much financial capital, but he’s flush with social capital.

You don’t have to sacrifice your own interests to create social capital. You can often create win-win situations where everyone profits. But the best way to build social capital is to help others without expecting anything in return.

There’s more to wealth than just money. Social capital is just as real as financial capital — and often more valuable.

Note: For an in-depth look at social capital, pick up a copy of Bowling Alone by Robert Putnam. But be warned: It’s a dry read.

The extraordinary power of compound kindness
Social capital comes from building a broad network of relationships, a network that you can draw upon to help yourself and help others. This isn’t networking in the smarmy, slimy sense, but in the authentic “I’m your neighbor and your friend” sense. A complex network of people will have thousands (millions!) of connections, creating a powerful web of support. (You can see great examples of this in Ben Franklin’s autobiography and in Keith Ferrazzi’s Never Eat Alone.)

These networks are usually built through everyday kindnesses. These actions compound (just like compound interest) to yield larger returns in the future. From my trip to Alaska, here are some examples of the sorts of small actions that help create community and help build social capital:

  • Southeast Alaska is peppered with small villages separated by large expanses of water. Boaters (and not just my skipper John) stop to check on each other, and on the people they know in out-of-the-way spots.
  • Another way to cope with this isolation is book exchanges. Many of the small airports and harbors contain bookshelves where folks can discard the books they’ve finished and pick up new ones. This is a brilliant idea!
  • We had miserable luck crabbing and fishing during the first part of our trip. One night, a small charter boat invited us over to share in the halibut they’d caught earlier in the day. Later, after we finally caught and filleted our first salmon, we handed off some of the meat to a passing boat.
  • Some of the summer boaters actually live in southeast Alaska. These folks have vehicles in their home towns, and they share them with other boaters they know well. When we docked in Sitka, for example, we were able to borrow a truck from Sailboat Bob so that we could run our errands and drive to dinner.
  • Every morning at 6:30, John gets on his ham radio to check in with the Great Northern Boaters Net, where dozens of different boats check in throughout the week, giving updates on their progress. This allows folks to keep tabs on each other, to ask for and receive advice.

These are just a few of the ways I saw social capital in action during my trip; there were many other examples, both large and small. Taken together, the community spirit I saw was amazing.

Social capital in real life
Social capital plays an active role in your life, too. The broader your circle of friends, the bigger your family, the better you know your neighbors, and the more involved you are in your community, the more social capital you have. (And the more social capital you contribute to others — it’s a reciprocal thing!)

The Dark Side of Social Capital. As great as social capital is, it’s not without its downsides. Though they’re built on the same stuff I’m talking about here, Good Ol’ Boys networks can make it difficult for outsiders to become part of a group. Some people contribute only with the expectation of return. This sort of manipulative behavior leads to minor versions of Don Corleone from The Godfather: They’ll do you a favor, but only because they want you to owe them. For social capital to be productive, it has to promote the welfare of the community.

Here are some everyday examples of how you and I generate social capital:

  • When I loan my rototiller to a friend, that builds social capital. When I then crash my bike and have to ride to his house for first aid (yes, this really happened), that generates social capital.
  • When your community comes together to clean up a run-down park, that generates social capital.
  • You create social capital when you join a bowling league, a knitting circle, or a book group. You create social capital when you go to church or join a social club.
  • When you stop to help a stranded motorist, you’re creating social capital.
  • Social capital grows when you share the surplus from your vegetable garden with your neighbors and co-workers.

As you can see, social capital is most often generated by doing things that help other individuals — or your community. It exists everywhere, but some places have more of it than others.

I’m not sure why I was so struck by the community ties I saw in Alaska. Are these ties really stronger than elsewhere? Were they just more obvious because they took different forms than I’m used to? How can I learn to see (and contribute) to the social capital here in Oak Grove, Oregon?

I don’t have the answers to these questions, but I’ll certainly be thinking about them a great deal during the coming weeks. As I say, social capital is always lurking in the background here at Get Rich Slowly. There’s more to being rich than just having a lot of money; there’s real wealth in having a large network of friends, too.

Note: If you’d like to read more about this subject, check out this fantastic article about the subject from The Encyclopedia of Informal Education.

Also don’t forget to follow Get Rich Slowly on Facebook and Twitter.

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