Social Capital vs. Financial Capital

Today I'm on the roundtable of the Stacking Benjamins podcast, along with Len Penzo, Greg 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.

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.