The RSJ Thought Center

Free-Loaders and Friendship: Lessons in Social Capital

Posted by Tony A. Rose on Nov 11, 2015 3:45:30 PM

This is the story of two people: John and Kristine. John is a guy you could meet twice, and you would give him the shirt off your back. Kristine could be your first-cousin who grew up down the block, but you wouldn’t give her an apple if it grew on the tree in your backyard.

George Bailey the richest man in townThe Story of John

Three decades ago, one of our clients found himself in a world of hurt. The bank was breathing down his neck, and John was about to lose everything he owned.

But, every single person in John’s life wanted to see him succeed. Even casual acquaintances could not bear the thought of seeing John’s business and livelihood sink.

So they rallied. One of John’s business acquaintances called upon an employee who knew a banker who had a customer who stepped forward to buy into John’s business, become his partner, and prevent the business from going under. Thirty years later, this business is thriving with the same partners.

This is the epitome of rich social capital. John found a way out of his mess for one reason and one reason only: He had a lot of strong relationships.

Over the years, John had nurtured these relationships, in part because friendship was his top value, but also because he understood something that many people overlook: The relationships you have with the different types of people in your life all constitute a form of capital that can be leveraged in the future. You get something from your relationships—and what you get is much, much more valuable than money.

The Story of Kristine

Contrast John with Kristine, the 38-year-old granddaughter of a wealth-holder. Kris has never had a job that lasted more than six months. She never pays for dinner. She forgets birthdays. She has taken advantage of her family’s generosity at every turn, and she has burned bridges along the way.

Recently, Kris lost yet another job and had to surrender her apartment. She sent an email to her friends and family members asking if she could crash on their couches.

We learned about Kris from one of our vendors, who is Kris’s cousin. And we also learned that not a single family member—including Kris’s own sister—was willing to let her crash on the couch.

Kris’s social capital was terrible.

Social Capital Is Denominated by Relationships

Your family’s social capital includes five groups of people:

  • From your family members, you receive love—unless you neglect them, in which case they become estranged.
  • From your friends, you enjoy fun—unless you neglect them, in which case you miss out on this camaraderie.
  • From your clients, you benefit from affiliation and networking, as well as feelings of productivity, satisfaction, and accomplishment—unless you neglect these relationships, in which case you lose business.
  • From your vendors, you receive their resources—unless you neglect them, in which case you begin losing out on these resources.
  • And from your business associates, you receive support and connection—unless you neglect these relationships, in which case your business suffers great financial loss.

If your family is not intentional about building positive relationships in these areas, the opposite will happen: It will erode relationships.

If you want your family members to have a rich social network, you must pay attention to and nurture these relationships with the goal of becoming “sticky,” meaning that your family members, friends, clients, vendors, and associates stick around, even when times are tough.

So if social capital is denominated by relationships, what creates these relationships? The answer can be found here.


Topics: Tony A. Rose, Wealth transfer, Social capital in estate planning, Wealth transfer in ultra-high net worth families, #accounting, #wealth

Rose, Snyder & Jacobs LLP is a CPA firm based in Encino, CA that serves private and public companies, business owners and high-net-worth families. Our services include tax, assurance, estate planning, business advisory, and wealth transition consulting. We deliver a long-term perspective and innovative accounting solutions so our clients can focus on their success. Call us at 818.461.0600 for a confidential, no-obligation discussion.
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