Social Capital: More Valuable Than Money?

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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Mike Piper
Mike Piper
10 years ago

And you didn’t even mention the social capital involved in blogging?! 😛

I still feel relatively new to blogging, but that’s been one of my favorite parts. You’re constantly making new connections with (and doing favors for, and receiving favors from) other people with similar interests. There’s really no way around it.

Anne
Anne
10 years ago

I love using my social network to save money and to help other people save money. For example, my sister-in-law just had a baby and we gave her all of our baby gear which helped her save a great deal of money (and got rid of clutter at our house!). We are constantly swapping babysitting with our friends. We like to borrow tools from our family members so that we don’t have to buy them- we borrowed a ladder recently from my dad and a rototiller from my husband’s dad. I would love to hear about how people use their… Read more »

lupalz
lupalz
10 years ago

I don’t see anything intrinsically evil with the “Dark side of social capital”. Contributing with the hope of having a return is just a different kind of investment: like venture capital as opposed to a government grant.

Luke
Luke
10 years ago

This is a difficult comment for me to publish, but I really feel that I can comment on the effects of *not* having social capital. Be nice! I’ve always been incredibly introspective and don’t really have anyone in my life that I think of as a friend. I was one of those obnoxious teens who acted like a bit of a prat to get attention and was shunned as a result. I soon realised the error of my ways, but kids are very unforgiving and it has coloured my entire adult life. I stopped going to church when I was… Read more »

Courtney
Courtney
10 years ago

I adore Robert Putnam! “Bowling Alone” is my favorite article of his and I discuss it sevral times a year with new people I meet! It is a sad truth that doing good without the promise of reciprocation is indeed something rare in most of the U.S. My husband helps out our elderly neighbor on a consistent basis and his daughter was in near tears thanking him because other neighbors had been taking advantage of him (he owns a stocked pond and a farm/garden). It was so sad that she was so touched by what we consider an everday kindness… Read more »

J.D. Roth
J.D. Roth
10 years ago

@lupalz (#3) Yeah, I agree with you. Perhaps I’ve phrased it poorly in the article. It’s true that by contributing to the community/friends/family, we expect (in a general way) to reap a future benefit. But I really do believe that there are folks who use social capital in a manipulative way. They’re scorekeepers. They’ll do you a favor, but then they use this as leverage to extract concessions from you in the future. Again, the best example I can think of is from The Godfather. Don Corleone’s actions do benefit the community (to an extent), but they’re primarily for his… Read more »

Trini
Trini
10 years ago

J.D., I like this article! Nice fresh thought and discussion.

May I suggest an edit? “When you stop to help a stranded motorist, [you’re] creating social capital.”

Dan
Dan
10 years ago

One word to help explain the effects of the dark side of social networking as exhibited in The Godfather: Tessio.

If you know the film, you know what I mean.

J.D. Roth
J.D. Roth
10 years ago

Thanks, Trini. That was a brain fart! 🙂

Everyday Tips
Everyday Tips
10 years ago

Welcome back! I hope you do a post on your vacation. I would love to learn more about what you saw and experienced. Back to the task at hand… Social community is great. However, sometimes I feel like so much of a giver, almost to the point of being taken advantage of. It isn’t that I expect something in return, but I also think some people can spot a giver a mile away. I find I have to balance my ‘social community’ with saying no. One way I love to give is through blood donation. Sure it hurts and I… Read more »

J.D. Roth
J.D. Roth
10 years ago

@Everyday Tips (#10)
I’m not going to post about my trip extensively here, but you can read all about it (and watch video) at my personal site.

Mike Choi
Mike Choi
10 years ago

@Anne:

I completely agree with you on using your social network of friends and family to borrow stuff and ask for help.

I go a step further and belong to several online forums and provide my insight on subject matter and in return, I post my questions about topics I want to know more about. So, it goes beyond your immediate frieand and family.

Holly
Holly
10 years ago

@ Luke: I do understand what you are saying… For my husband and for myself, it can be difficult to be receptive to help from others…we don’t like to ask for help, so we don’t — we rely on each other for just about everything. I used to be very willing to help out other people (i.e., babysit their kids when they needed a sitter, help to paint a deck, weed their garden, prepare a bunch of food for parties). I was a people-pleaser. Oftentimes I would try to involve my husband in those efforts. I found out that he… Read more »

Shalom
Shalom
10 years ago

A less sinister example of the “Dark side” of social capital is my colleague of 15 years, M. M can be very generous (“You’ve just had surgery, I know you don’t need to be cooking, so I’m bringing over a meal;” “You’re going to DC so I brought in these 2 travel guides for you to take;” or “We’re moving and don’t need this ladder anymore and I thought you could use it, so I’ll drop it at your house on Saturday”). She always explains in detail the valaue of what she’s offering. She describes how I might use the… Read more »

Jason B
Jason B
10 years ago

I hope to read the rest of this and the comments when I’m not late for work 😉 but I have to say that every single job I’ve ever had fell into my lap because of my social connections.

Nicole
Nicole
10 years ago

Re: your trip… I wonder if that 11 year old girl was the same one I sat next to in the fall (there can’t be that many people in Alaska, right?). She told me about home schooling and her desire to become a missionary. We got into an in-depth discussion about whether or not belief was needed for salvation. One of the more unusual experiences in my life, talking with a pre-teen from Alaska on a plane.

Kate
Kate
10 years ago

J.D., I thought you did a great job explaining the dark side of social capital, as did Shalom. And I liked Holly’s “I vs. we” comment. Here’s my attempt at explaining the dark side: My friends, the M__s, have great social capital. They know their neighbors, volunteer at their children’s school and are active in their church. They have housed people who needed temporary housing. They freely give of their resources as they are able. They’ve watched my child for free, and I’ve watched theirs. As a result, people gladly do them favors. When they’ve had kids, people have arranged… Read more »

Ris
Ris
10 years ago

I love the idea of social capital. I freelance at a nonprofit that helps disadvantaged youth from urban areas navigate the path towards a successful college career. One of the big things we emphasize with our students is that they should draw on their social capital for help with the college application process–if they don’t have a parent who has gone to college and thus can’t answer questions, how about another relative or a teacher or pastor? We also pair them up with college student mentors who can help. It’s a great lesson. Thanks for writing about it!

partgypsy
partgypsy
10 years ago

This item fits my husband to a T. Helping other people just comes naturally to him, he cannot not do it, nor does he keep tabs. I used to be protective of him when we started our relationship because I felt he was taken advantage of, but you can’t change a tiger’s stripes. However he has a much richer social network than I have, and when you live like this you need less money, because you can trade both help and tools, and people may give you help just when you need it. Also, except for when he is new… Read more »

Rex Huston
Rex Huston
10 years ago

Excellent points, when I moved to my current locale 5 years ago I did not know anybody. I joined a Toastmaster group and a softball team. I would freely offer my skills as a “computer guy” building up social capital and developing a great group of friends. If you get the reputation as being willing to help someone out people are more than willing to open up there network to you to help you out in return.

-Rex

Victoria
Victoria
10 years ago

I learned how little I really need on a trip to Istanbul Turkey. The airline lost my luggage. I went to a modern mall and got a business suit, a second blouse, a toothbrush, and a comb.

The fate of my luggage? Oh! It circumnavigated the globe and was fedex’d from Instanbul two weeks after I returned home.

mick
mick
10 years ago

Anyone who lives in the south, especially rural south, knows exactly what you mean about the good ol’ boy network and its many guises. Although, it’s the good ‘ol gals too (schools, charities, churches, pageants, social clubs). Just different arenas. A good ol’ boy networker, Bob-owner of hardware store, will hire George’s boy, George Jr., just because they want to get in good with George, who owns the feed & seed store in town, who has the power to extend credit on seed during bad years (especially if the bank isn’t taking loans). Doesn’t matter if George Jr. pulls wings… Read more »

m
m
10 years ago

Luke ! it isn’t too late to make connections. Volunteer or get involved with a cause and you will make friends.

Khaleef @ KNS Financial
Khaleef @ KNS Financial
10 years ago

Great article. I think you did a good job of explaining your point. I think that when we bless others and try to honor God in all of our relationships, it provides a great benefit to us. We are in God’s will for one, also we can know that we have touched others. Also, it is great to know that when you are in need, you have a network of people who will come to your aid.

Bananen
Bananen
10 years ago

But… You can’t enter social capital into a spreadsheet 🙁

Annie Stith (@Gr8fulAnnie)
Annie Stith (@Gr8fulAnnie)
10 years ago

I might be showing my age, but didn’t this used to just be called “neighborliness?” 😉

Annie

Becky
Becky
10 years ago

I may have an insight as to why you saw social capital in action more in Alaska than you do at home. Several years ago, I moved from an affluent, medium-sized city in the Southwest to a low-income rural area in the Northeast. I was very struck when I moved here at how giving everybody I met was. People I hardly knew loaned me stuff, brought me food, fixed my car. There is a very strong culture of building social capital here, unlike what I experienced in the city. Even though my city was friendly, open, and laid-back for an… Read more »

Joanne Wright
Joanne Wright
10 years ago

“The hole through which you give is the hole through which you receive” Dr Edward Kramer

I believe in social capital!I’m in!

elisabeth
elisabeth
10 years ago

I think there is a point where social capital meets regular captital — we believe that shopping locally and supporting small local businesses is a form of social capital. For example, we buy our books from used bookstores and an independent book store in our town. We know those owners and when we were buying gift certficates as prizes for a book-collecting contest at the local U, the owners offered to subsidize the purchase. Similarly, we keep our funds in local banks and credit unions, and, again, what we may be losing in marginal interest, we’re getting back in having… Read more »

Kerry
Kerry
10 years ago

thank you for a fantastic post. compound kindness!

Suzy
Suzy
10 years ago

This is a great article, and something I’ve been thinking about a lot over the past few years. In addition to the favor-doing part of social capital, which is important but tends to come once relationships are already well established, I’d like to point out that actually making time to spend with other people is super important. If a friend from work, school, church, whatever invites you over to dinner or out to a game or something, and you turn them down once or twice because you’re too busy, there may not be another invitation, and you may have lost… Read more »

Brent
Brent
10 years ago

One thing that I’ve found over time, is that you need to be selective about your network. There are good investments and bad ones. I have a friend that I’d consider a bad investment. Maybe that social capital is just very built up, but you have to recognize the opportunities to use it. I have another friend that I feel I actually owe because the payback has been so timely and personal. This post actually revealed something to me. That I need to be just as careful with my social capital as I am with my financial. Thanks JD.

LoJo
LoJo
10 years ago

This post is so great, and is something that is top of mind right now as I start my own business. It takes a great deal of support to leap out on my own, and without great friends, colleagues and others in my network… I’m not sure I would have been as equipped to do it! Also, I know that I feel like there is higher social capital in smaller areas, or areas where others are very dependent on each other for help. But, then I look at my local neighborhood and realize we have it here, we just don’t… Read more »

Rob Bennett
Rob Bennett
10 years ago

I don’t have the answers to these questions

You move six steps ahead of most of the “experts” when you ask the right questions, J.D.

Rob

DC Portland
DC Portland
10 years ago

A very timely post, JD. Even though Putnam’s book is now somewhat dated, social capital is now, more than ever, critical to our success as a society and species. The tragic oil spill in the gulf reminds us that we have reached the limits of our abuse of the environment. The economic and social crises that we are now beginning to face are the result of our environment reaching the breaking point. Human society will be forced to change (hopefully it will decide to change before it is forced) to accomodate the rapid rise of people living with fewer resources.… Read more »

Anne
Anne
10 years ago

@Luke-

Thanks for sharing! I know what you mean! When I was 22 I moved to Los Angeles by myself and I didn’t know ANYONE. It was the hardest 3 years of my life. I moved back to Michigan because I was sick of living without a strong network. Best of luck to you!

Heather
Heather
10 years ago

I have a great example of this in action. My husband and I about a year ago started renting in a new neighborhood. We didn’t think about schools at the time because our daughter was still in preschool and we didn’t expect to be staying more than two years. During a casual conversation on the street one day, a neighbor clued us into the fact that our neighborhood school actually had a highly respected pre-K magnet program. People from all over the city applied, but only those, like us, living in the “walk zone” could be sure to get in.… Read more »

chacha1
chacha1
10 years ago

Great article and terrific comments, especially from Becky and Luke. I completely agree with Becky about rural life almost necessitating strong social ties. The flip side is you have to give up some privacy, but this is not necessarily a bad thing … I think of recent years, people have “bunkered down” to a deleterious extent. Like Luke, I was a loner and outsider as a teen and didn’t even care to change that during college and grad school. Only after completely changing my environment and getting involved in a sport I’d barely heard of (ballroom dancing) did I develop… Read more »

Budgeting in the Fun Stuff
Budgeting in the Fun Stuff
10 years ago

Without social capital, I’d be too depressed to care about personal finance or a variety of other things. I am a social creature and adore the fact that another personal finance blogger brought this up! Social capital is what makes weekends so great and being able to look yourself in the mirror and know that you are contributing good stuff to the world. Luke, I married someone like you. It’s never too late to build a network. My husband was a teenage pain in the butt and wasn’t all that much better in his early 20’s when we got married.… Read more »

Emily
Emily
10 years ago

Luke – I am an introvert, and have a tendency to hide from building social capital. One thing that helps me is to network through activities where I have a concrete task, rather than straight social networking. For instance, volunteering at a soup kitchen where there are several other volunteers, or taking a class (especially one with lots of teamwork or pair activities, like cooking or ballroom dancing or chemistry), or even getting a second job as a grocery store clerk. If I have a duty and a defined role, I find it much easier to smile and be helpful.… Read more »

Suzanne
Suzanne
10 years ago

Thought-provoking post. I have never thought of my personal community in terms of social capital, but in a way, I guess that I have tried to create social capital for myself. I am a 40-something single lady who lives in a city with no close relatives. I have spent close to 10 years building a community or support system for myself. You could call this social capital. When a friend became seriously ill 5 years ago, it scared me to think I may not have anyone to help me in my time of need, so I stepped up my social… Read more »

erika
erika
10 years ago

Very timely post for me. My husband and I were just talking about this yesterday. He has the most generous, giving spirit when it comes to doing things for others – doesn’t understand the concept of looking the other way when someone is struggling with a heavy package or clearly needs help of some sort. He cheerfully hands out extras from our garden to neighbors we don’t even know, shovels snow for every older neighbor on our street, and uses his extensive handyman skills to help out almost everyone we know. What we were discussing yesterday was his reluctance to… Read more »

Ryan
Ryan
10 years ago

While I cannot argue against the value of social capital, I do want to offer a cautionary tale to counter the overwhelmingly positive response this article has received. Like Luke (comment #4), I was a troublemaker when I was younger. As I grew up, I gradually changed my ways and became a nicer, more considerate person. I made a huge effort to treat my friends, girlfriends, and family with kindness and help them when I could. However, I found that when the time came when I needed help, I had no one who was willing to offer any. These people… Read more »

Jenny B
Jenny B
10 years ago

Have you ever heard of bookcrossing.com? It’s the same idea as the book exchanges at the airports and harbors (maybe even the same program!) except each book gets its own tracking number and then you can go online and see where your book has been! We have a drop site at the library where I work, and it’s hugely popular! It’s such a great way to share within the community!

Sarah
Sarah
10 years ago

One thing that you failed to mention is that, like wealth, social capital is in part something you are born with (or without). You talk about creating it by doing different things, but you also start with a certain amount based on various factors. Some people also have an easier time of it than others. This is one reason why social stigma is so damaging. Emotionally, yes, and financially as well. If you are ostracised for your religion, your mental illness, your sexual preference, there’s nobody around to give you one of their tomato plants so you have to spend… Read more »

Nate
Nate
10 years ago

I flipping love this post. Actually the comments are even better. No doubt a result of the social capital JD has built with our little GRS community 🙂

Have a wonderful long weekend everyone! I am starting mine early.

Samantha
Samantha
10 years ago

I think I’m closer to Luke’s situation than the opposite. I have family who love me and would do anything from me, but are far away, I have a great boyfriend, and I have roommates/friends, but it’s not a big social group – our friend group is 6 including myself and BF – and I don’t do much to keep it up. But I’m fine with this. People say I shouldn’t be, but if I’m happy, I don’t see what’s wrong with it. Maybe it’s because I was raised in a family where you ALWAYS have family when you need… Read more »

Holly
Holly
10 years ago

Great post, Thanks!
Having moved to a brand new city a year ago, I have started from scratch on re-building a web. Fortunately, my new city is extremely open and friendly, so it is a little bit easier. But I still need to work on it! So immediately after reading this blog post I emailed someone about a volunteer opportunity next weekend. Thanks for the kick in the pants! 🙂

Tall Bill
Tall Bill
10 years ago

Great post JD! Having been in Alaska during the 70’s during the pipeline construction & into the 80’s all over the Southeast myself, I found many examples of what the lower 48 would call “Neighborness” – ie: neighbor helping neighbor. It’s a big part of life up there due to the isolation & limited resources that come from being in a small town miles from anywhere. As you saw, you can’t drive to another town in most parts. Boats and Planes are the way there. My favorite times was at the 16 mile club in Sitka, which I have no… Read more »

Ace of Wealth
Ace of Wealth
10 years ago

J.D, glad to see that you’re back safe and sound. Your video of the whales was awesome! I love the idea of social capital, and until you brought it up it wasn’t really something that I considered as a commodity. I think this was an excellent post. I would attribute the extra generosity during your trip to diffusion of responsibility – see: http://en.wikipedia.org/wiki/Diffusion_of_responsibility Basically it means that the fewer people that are there, the more each individual feels responsible for the collective whole. It seems that since the population in Alaska is small compared to that of a major city,… Read more »

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