The Examined Life Assesses All Three Forms of Capital

Capital is often narrowly defined as a tangible financial resource. Yet even accountants understand that intangibles have value. In fact, adding together the intangibles alone on Google’s financial statements totals over $19 billion. These brands, patents, and goodwill are harder to measure, but no less important and valuable.

Individuals also carry intangible capital on their own “balance sheets.” Taking stock of your intangible capital is an essential aspect of the examined life.personal-capital-triangle

Much has been written about material capital, so I feel little need to offer anything but a very brief summary. This category includes your house, your savings, your cars, and anything else that fits in your jewelry box, garage, or investment account.

The next two forms of capital are the more intangible types:

Human capital is the category of your educational degrees, expertise, and personal health. Unlike financial investments that require faith in the management and expertise of others, you are the primary agent in this fundamental form of intangible capital. Is your training or physical or mental health keeping your from reaching your potential? If so, there’s no time like the present to start making changes to improve.

Social capital (also known as cloud capital) is the hardest to measure, but still important. Social capital concerns the relational and spiritual connections that provide meaning and value in life and beyond. I have yet to talk with someone nearing the end of their life who felt that they spent too much time with friends and family.

Relationships are a highly transferable part of social capital. Consider how often you were helped or hindered because of your family, associations, and references. Some inherit a large starting social capital balance, while others may be disadvantaged by race, gender, sexual identity, and/or other characteristics that separate one from the norms set by culture. Before you can begin to set social capital goals, you’ll need to begin with an pragmatic assessment.

If you identify anxiety, depression, stress or burnout, your primary goals may be focused on retreat, exercise, and reflection. An examined life requires time for self-reflection. Bill Gates takes two one-week “think weeks” every year, and a personal mentor of mine recommends at least one 24-hour silent retreat per year.

When financial advisors dare to guide discussions into the more intangible forms of capital, we call this life planning. Whether you do your life planning with your money guy, a trusted friend, or alone on a mountaintop, the point is that analysis and goal setting take time and intentionality.

You can begin taking stock of these three forms of capital by asking yourself the following question: How do I feel about each of my current balances?

Material capital: Good Shape, Needs Work, or Bankrupt?

Human capital: Good Shape, Needs Work, or Bankrupt?

Social capital: Good Shape, Needs Work, or Bankrupt?

There is wisdom in assessing all three forms of personal capital at the same time because they all impact each other. This is why the arrows of the personal capital triangle (see image above) point in two directions. Too often, only one aspect of capital development is assessed at a time—if ever. Failure to consider the big picture might lead your financial advisor to make one assessment and your clinical psychologist, quite another.

Viewing your material capital in isolation from your human and social capital has also fostered an unnatural ethical tension. Material gain earned by any legal means necessary may be creating debits to your human and social capital balances. The examined life considers all three forms of capital when reflecting and setting goals.

Author’s Note: Before creating this post, I started with a conversation among friends and I want to thank everyone who shared comments (both online and in person) which all helped shape my thinking on this subject.