I’d like to introduce you to the concept of Total Wealth.
Wealth is measured by much more then money.
Total Wealth = Financial capital (financial resources) + Human capital (individual family members) + Family capital (family members relationships) + Social capital (charity & community) + Intellectual capital (governance, policies and expertise)
Adding to the understanding that successful intergenerational wealth transfer may or may not involve the transfer of an operating business to the next generation, wealth itself can be understood as more than pure financial assets. The family’s financial capital is a tool to support the growth of its human, family, social, and intellectual capitals. The key concept of total wealth is that the most important assets of a family are in fact its individual members.
The concept of a family’s total wealth is that, in addition to quantitative, financial capital, it also includes qualitative components, including human, family, intellectual, and social capital, as follows:
(a) Financial Capital
Financial capital of a family is the property it owns. It comprises all branches of the family enterprise, including operating business assets, financial assets (cash, public securities, privately held company stock, interests in private partnerships), real estate assets, philanthropic assets, heirloom assets and deferred assets. Financial capital is the tool that facilitates the cultivation of the other forms of capital.
(b) 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 and establish a positive sense of identity. When speaking about human capital, it includes effective parenting and grand-parenting, communication, consensus building, team building, conflict resolution, leadership training, values, morals and ethics and goal setting.
(c) Family Capital
Family Capital is the family members’ relationships with each other and their shared values, vision and mission.
(d) Social Capital
Social capital refers to the family’s relation to the larger community. It also refers to the family’s ability to share and sustain an intention that transcends each member’s individual interests, often in the form of volunteer and philanthropic activities.
(e) Intellectual Capital
The intellectual capital of a family is composed of the knowledge gained through the life experiences of each family member and what each family member knows. Intellectual capital includes family members’ academic successes, career growth, artistic achievements, financial literacy and the ability to learn and teach what they know. Intellectual capital is also the working towards governance and policies for enterprising families succession.