what it takes to keep their financial capital in the family.
Right Understanding
But this conclusion is wrong.
The “it” is not money. It is the family's well-being. That is its true wealth. We encompass this well-being by speaking about “qualitative wealth”—the family's human, legacy, family relationship, structural, and social capital. This wealth as well-being is the goal, which the family's quantitative wealth, its financial capital, rightly serves.
Beating the proverb is not a matter of simply using various tools and techniques—family meetings, values clarification, communication ground rules, and so on and so forth—to make family members better stewards of their money. Keeping your money in your family is not necessarily a bad thing. But it is not the main thing. It is only one-fifth of the task. And it is the least important fifth, when it comes to happiness.
The goal of Complete Family Wealth is to help you identify, inventory, and grow your true, or complete, wealth as a family. This complete wealth far transcends money. Growing complete wealth also meets the criticisms of those—from Andrew Carnegie to proponents of social justice—who denounce inherited financial capital as bad for families and for society. Complete family wealth improves the lives of family members and benefits the communities of which they are a part.
One family leader captured the distinction for us by quoting her grandmother. This wise woman, she said, would often say, “Our family has always been rich, and we've sometimes had money.” There is the distinction between qualitative and quantitative capital in a nutshell.
As with any important undertaking, it is crucial to begin with right understanding. To that end, as you read this book and think about wealth, notice when you automatically identify that term with financial capital. That is the identification we are seeking to challenge and to substitute with wealth as well-being. If you choose to pursue the journey of family wealth, be clear just what kinds of wealth you are trying to keep in the family.
Complete Wealth
We have said that complete family wealth comprises five aspects of qualitative capital––human, legacy, family relationship, structural, and social—and the family's quantitative assets, its financial capital. The goals of the rest of this chapter are to define these forms of capital, outline ways of growing them, and suggest a method for measuring the growth of qualitative capital.
Rarely do families measure their qualitative capital. That's because they often do not even recognize that they own this type of capital. But can you imagine any enterprise being successful if it didn't track most of its capital?
The failure to acknowledge, measure, and grow the qualitative capital of a family is the principal cause for the failure of family flourishing.
In contrast, investing in the family's qualitative capital—investing time, energy, and financial wealth—is perhaps the greatest “impact investment” a family can make.
As you read, you will likely notice overlaps among the five aspects of qualitative capital. That is because each one captures an aspect of the same thing: the family's true flourishing.
The Five Types of Qualitative Capital
Human Capital
The Human Capital of a family consists of the individuals who make up the family. Their human capital includes their physical and emotional well-being as well as each member's ability to find meaningful work, establish a positive sense of identity, and pursue his or her own happiness.
FIGURE 1.1 The Qualitative Capital Wheel.
Legacy Capital
Legacy capital consists of the family's core values and sense of shared purpose. In many ways, it can be considered the “Family Brand”—what makes the family distinct and gives the family members a sense of shared identity.
Family Relationship Capital
Effective communication is at the heart of every successful family. A family's ability to engage and support communication across generations is particularly important. This ability to build strong interpersonal connections within the family is family relationship capital.
Structural Capital
Families with significant wealth or businesses often operate within a network of trusts, partnerships, contracts, and other legal or business relationships. Structural capital consists of an understanding of this network and the ability to navigate it effectively.
Social Capital
Families shape and are shaped by the communities of which they are a part. Commitment to these communities gives families a strength that comes from serving something greater than themselves. This commitment to communities beyond the family is social capital.
Financial Capital
The financial capital of a family is the property it owns. This property may include cash, public securities, privately held company stock, and interests in private partnerships.
The focus of this book is qualitative capital, not financial capital. But that doesn't mean that we think that financial capital is unimportant. Financial capital greatly contributes to families' ability to cultivate their other forms of capital. It makes possible quality health care, education, philanthropy, and the time and opportunities to come together and talk about building and sustaining a shared dream. The opportunity to cultivate these qualitative assets is a great gift, which financial capital makes possible.
Growing Capital
Wealth preservation is a dynamic, not a static, process. To succeed, each generation of the family must adopt a first-generation—a wealth-creating generation—mindset.
Any family whose complete wealth—qualitative and quantitative—is simply maintaining value rather than growing it is either in or in danger of entering into a state of decay or entropy. A family, like every investor, must maximize its return on capital if it is to achieve the growth necessary for preservation over a long period of time. What are some of the things a family can do to grow its various forms of qualitative capital?
Human Capital
With respect to its human capital, a family can consider implementing the following practices:
1 Promote each member's individual flourishing. (For more on the psychological aspects of individual flourishing, see the Conclusion.) This includes providing the best possible medical care to every family member whose pursuit of happiness is blocked by addiction or physical or mental illness.
2 Ensure that every family member's basic requirements for food, shelter, and clothing are met, and for members who experience a life emergency,
