Monday, September 22, 2014

Social Capital vs. Financial Capital

Social Capital vs. Financial Capital
Today I'm on the roundtable of the Stacking Benjamins podcast, along with Len PenzoGreg McFarlane, and Joe Saul-Sehy. We're talking about retirement, ownership trends of certain assets, and when you might be saving too much. It is my very first podcast and, go figure, immediately after having me on the show, Stacking Benjamins won the Plutus Award for "Best Podcast". Coincidence? 

If you have an hour to burn, click here to give it a listen. And if you just want to skip to the roundtable, you can fast forward to 11:15. And...back to the blog.

A few months ago, I helped my buddy build a paver patio. Over a weekend, we lifted concrete pavers and fifty pound bags of sand and got our hands blistered from shoveling and picking the ground. We are both first time home owners, and neither of our homes had an outdoor patio yet. So it seemed like a good place for both of us to start improving our properties.

Social Capital vs. Financial Capital
About a year earlier though, when we first bought our home, I hired out the job. Two contractors came out to my house to dig out the ground, measure and slope it away from the house, build and compact a base, and lay down the pavers. At the time, I figured I'd rather just pay someone else to be the labor than to be out there myself in the Arizona heat, lifting up pavers over a couple of days. I negotiated, of course. Even at the end of the deal, I got an additional 5% off just for paying in cash. But given the choice of putting in the work or giving up the funds, I figured I'd just part with the money.

But when my buddy asked me for a hand, I didn't think twice about it. It actually sounded oddly fun this time around. We'd get to hang out and drink beers, and get some good exercise out of it, too. And it did end up being a good time, even with some cut hands and sore backs. The rub is that I didn't think it was worth my time when it was for my own property, but thought it was worth the effort for someone else's. Why is that? Am I a just a huge sucker?

Well, yeah. But there is also something else at work: namely, social capital. Social capital is the value created when people work together instead of trying to go it alone. Social capital is what gets you a ride to the airport, or ten sets of hands when you're moving to a new apartment. It gets you help from a coworker on a difficult project on a deadline, even though there might be no financial benefit for her. And, yeah, it's what gets your friend to come over to help with a DIY project.

Sometimes, there's an element of reciprocity involved. Someday, and that day may never come, your friend may call on you to do a service for him. But often social capital is created and provided without any expectation of a payback. Which is weird, right? With financial capital, there is always a trade, and presumably a fair one. There's no such thing as a free lunch, and all that. But with social capital exchanges, there often is a free lunch. I mean, think of all the free lunches you give your kids over the years. You don't feed your kids because you are expecting that they'll feed you when you're old (though, presumably, they just might). You feed and take care of them because you have such a strong relationship: because you love them. But it's not a quid pro quo.

Instead of expecting additional favors down the line, social capital both stems from and strengthens our relationships. It's a virtuous cycle. You call on someone to help because she's your friend, and after the job's done, your friendship is a bit stronger, too. Now you have more social capital, and you're even more likely to want to help each other. Lather, rinse, repeat. So we do these things for our loved ones, our relationships improve, and we accomplish our goals with more efficiency and for lower costs than if we had gone it alone.

Which all goes to say that efficient use of social capital is good for our relationships, and can be good for our personal finances, too. We don't always need to outsource our tough tasks, or seek out professional advice. The people in our networks want to help us, and have a varied stock of expertise they might be happy to give us for free. Often, it's there for the asking.


*Photo is from Average Jane at Flickr Creative Commons.

36 comments:

  1. So many times I have gained from the kindness of others, often where reciprocity is most definitely not expected. I always strive to pay that kindness forward and I enjoy being a part of that social capital cycle. It's very human.

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  2. That 'intangible' value you create by helping someone out is really extraordinary. Like your example, I often find myself far more willing to do any task if it results in a great benefit to someone else, but always feel a little weird asking others for help. It really is worth trying to find opportunities to involve others in as much as we can, and use each other's talents to keep that virtuous 'social capital' cycle growing!

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    1. I'm the same way, Jason. I don't often lean on my network, to my own detriment. I'm hurting myself and denying the relationship a bit, too. Like you said, it's worth it to ask just to keep the cycle going.

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  3. We just reaped some lovely ROI from some social capital today - yummy freshly grown avocados! We loaned a friend a tool and when it came back it was accompanied by those treats. Mmmm!

    We're pretty good at giving social capital, but harder at asking for it. I wonder with our upcoming kitchen renovations if we'll end up asking friends to come over and help as they have offered. We never have before, but this is also going to be one of the biggest projects we've tackled...

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    1. Free avocados! Woot!

      I think your big kitchen remodel is a good chance to use that social capital, Mrs. Pop. Who knows: maybe one of your friends is a DIY master.

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  4. Sounds like you had a good time on the podcast! I agree that social capital is very valuable. Plus, it feels nice to help someone else out, and you're right that it does strengthen our relationships. I have to admit I'm not the best at asking others for help, but I'm trying to improve!

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    1. Thanks, Erin! The podcast was a blast. I hope I'm able to join the show again someday.

      It seems we have a pattern among personal finance bloggers: we don't mind helping, but have a hard time asking for the same. Hmmm...

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  5. We're finally in an area where social capital matters. Among our friends in DC, it wasn't really that important. Here, we have friends who 1) know how to do things and 2) want to help, just because. We've been babysitting a few times for our friends, and they've already promised to help us put a deck on the new place once it's warm enough. I don't think everyone lives in an area where social capital matters, but it's nice to have it.

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    1. That sounds like an awesome trade for everyone. Free daycare and a new deck, too. Win win!

      I hadn't thought about this varying by locale. I wonder what the key factors might be (urban/suburban/rural, age groups, etc...)

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  6. This is actually one of the main things that Seth Godin talks about in his book "Linchpin." Building social capital is important in today's workplace, but it can also spillover into life outside the office, as you explained.

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    1. Thanks for the book recommendation, DC! I just read The Power of Habit again, and need something new for the bedside table. I'll give that a look.

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  7. I think the return on social capital is better, too, even if it doesn't save/earn you a penny. (Though it almost always does.) Our relationships are such a huge part of what we earn all that money for, and nurturing them is going to pay dividends beyond what cash can buy.

    Also, super excited about that podcast. You and Joe are two of my favorite PF blogosphere men. Is this something I can stream while I'm driving to work? On my phone?

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    1. Hi Femme Frugality! You can definitely listen to it for free on iTunes (or on the Podkicker app if you're on Android).

      That's a great point about the return on capital being better with one than the other. I really wish I'd thought of that angle! ROI is the key with any capital invested, right? Man, that could've been a whole nother post.

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    2. I am downloading that app! I just opened the webpage and pressed play before I set off, but I'm guessing the app makes it a lot safer behind the wheel. Lol tell Joe I risked my safety for him. :p

      It was great! I really appreciated your perspective!

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    3. Thank you! I was totally nervous, but glad to have done it. It was a fun time.

      BTW, I'm a huge fan of the podkicker app, esp. as someone who never uses data on his phone. You can stream the podcasts when in wifi, or download them and have them on your phone whenever.

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  8. Social Capital also has the benefit of being tax free :-) Good for the soul too!

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    1. That's true! Tax free 'income' is the very best kind.

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  9. I experienced this first hand as a BFF and I preserved food together this year. It was SO fun. We are meant to fellowship together as humans, and I think that working on a project together brings an extra element of bonding in. There is something cool about completely a ginormous task with a friend. :-)

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    1. Well put, Laurie. We humans are social creatures, our loner tendencies not withstanding.

      The really big tasks bring us together in a way that normal hanging out doesn't. Wish I'd written about that, too...

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  10. I feel like people are helping me all the time so I am almost always willing to return the favor. I'm actually helping a friend move this weekend!

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    1. Good luck with the move, and good on you for helping a friend. He/she will definitely remember that.

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  11. I think this is one category we entirely neglect in our household and probably shouldn't, some of it has to do with the initial ask and not seeming like we are just asking for stuff from them and I think some of it is deciding if we think this friend is a an acquaintance or someone we feel close enough to ask a favor.

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    1. There's always a question of 'how good a friend is so-and-so' when considering whether to ask for the big favor. Still, sometimes these things are a good way to become closer friends, too.

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  12. Very interesting concept...I've always known of it but didn't know it had a name: social capital. I do also enjoy helping others, but tend not to ask for help myself as I don't want to inconvenience others. And I feel like I owe them one...even though I don't necessarily feel the same way when I help others (well it depends on what it is)...often times I just do it because we're friends and I expect nothing in return.

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    1. Yeah, in general I don't think these things are really a tally sheet of favors. Most of the time, we're doing it just because we love the person.

      There's probably a point at which we expect some reciprocity though, too, whenever we do have a really big task.

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  13. You make a great point. I too have hired things done only to turn around and help a friend or family member do the same thing. I suppose I should've just asked them for help when I did my project too instead of spending more $$ to hire it done.

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    1. Yeah, hindsight's 20/20 on that stuff, isn't it? I feel like there's a whole set of unspoken rules about what tasks we can even ask for help with. Like, if I ask friends to help me clean up my yard, that'd be weird.

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  14. I probably have more social capital right now than financial. My "community" has been amazing, helping me with referrals, side jobs, support, etc. Without it I think I would have crumbled. It's also what is keeping me living in such an expensive place. I love my friends here dearly.

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    1. I remember that being the case in Southern CA, too. It gets a bad rap in a lot of ways, but I do recall having a great and broad social network there. People help their friends and neighbors there.

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  15. This post helped clarify my recent addiction to DIY projects. We of course are mainly motivated by saving money, but the real reason I love working on these projects...it's the quality time and bonding with my husband. Nothing brings you together like running gas line to your kitchen or installing new torsion springs in your garage. We're proof.

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    1. Those are awesome DIY projects, Emily. One of our really old springs (pre-tosion) is broken on the garage door, to the point that we don't even use it now. We like the door though and don't want to scrap it, though we've gotten quotes that say it'd be cheaper just to replace it than to repair and upgrade to a torsion system.

      Plus, I'm worried about breaking my arm. Maybe I'll try to pick your brain on how you DIY'ed.

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  16. My social capital is quite low. I dont have many friends and better yet I have moved somewhere completely new. Not easy making friends when you are approaching 40, introverted and private.

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    1. I hear you. Though with ownership of a brewery, you have access to a very important social lubricant, and one particularly good for friend making. :)

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  17. When we moved we had our friends help, between the hours it took, beer, and food it was actually cheaper to hire movers. It wasn't great social capital either because everyone who helped us were exhausted. Would have been easier getting movers and then just having a housewarming.
    This weekend I'm laboring for free AT&T a food festival for a friends new business, at least I'll get a beer and a plate of food

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    1. Hey Charles. There's definitely a tipping point, where it's better to outsource.

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