The Science of Economic Opportunity

I have been thinking a lot about capital. All kinds of capital. In fact, if I had a list of favorite words, “capital” would be near the top. It is such a big and important word, especially when paired with other words like financial, human, and social. It covers a lot of ground and I dig it. I went searching for a great definition of capital and came across the one below, which I then slightly modified:

Capital: wealth in the form of money or other assets owned, given and/or shared, by a person or organization or available or contributed for a particular purpose such as starting a company or investing.

Here at SheMoney, we talk a lot about our financial capital. This is, after all, a financial newsletter. But this month I want to talk about a different type of capital, namely, social capital. I was inspired by Robin Rankin, our guest author and my dear friend, who wrote on this topic for our January’s ShePlace newsletter . I encourage you to read Robin’s piece in full and sign up for the newsletter . But to summarize the piece, Robin describes how she builds and shares her social capital through meaningful relationships, and how she considers these relationships to be her true source of wealth. Robin is on to something, as there is a growing body of research that suggests that social capital truly does have a lot of value, with studies showing that our health , happiness , and overall well being are affected by our social relationships . In fact, higher levels of social capital have been found to not only be good for you as an individual, but it can also contribute greatly to upward mobility. And notably, a high rate of upward mobility has long been considered an indicator of a healthy economy.

What Is Upward Mobility? Upward mobility measures the frequency a person changes their socioeconomic status. A high rate of upward mobility indicates a healthy economy, and one of the key factors that drives this economic advancement is job advancement.

One of my favorite podcasts to listen to is Plain English , hosted by Derek Thompson. In September of 2022, I listened to an episode called “What’s the Secret of Success in America? This Economist Has Answers.” That economist is Raj Chetty , and he is a Professor of Economics at Harvard University and the Director of Opportunity Insights, which uses big data to study the science of economic opportunity. The science of economic opportunity! He describes this field as the study of how we can give children from ALL backgrounds a better chance of succeeding. To that I say, "Heck yes and tell me more!"

I highly recommend that you listen to the full podcast, but if you are more of a reader than a listener, you can find the transcript here . To say that I loved this episode would be an understatement. I loved it so much that I leapt over to Chetty's website to geek out on research papers, courses, policy implications, and more. There is a treasure trove of fascinating information awaiting you on this site, and the foundation of his research focuses on what he calls the trillion dollar question: What are the driving forces behind the disparity of opportunity for upwards mobility in the United States? As you’ve probably already figured out, social capital plays a role.

Chetty describes social capital as “the strength of our relationships and communities”. To study social capital in the US, Chetty and his team analyzed data across several decades, including 21 billion relationships on Facebook. They looked at where people grew up, and then compared that to whether or not they were able to achieve upward mobility later in life. Chetty was then able to use this data to create the Social Capital Atlas , a visual dataset that examines the social capital of each county in the US across three indicators: Economic Connectedness, Cohesiveness, and Civic Engagement.?Visit this site to dig deeper. You can actually enter specific zip codes and the atlas will give you information as it relates to those measures. I was excited to learn that Salt Lake City, and Northern Utah more broadly (where I am based), is a location with high levels of upward mobility.

It should come as no surprise that there is great variation around the country in terms of levels of upward mobility. What is so fascinating about Chetty's work is what he found to be some of the reasons behind that variation. Turns out, an important factor may be Economic Connectedness, which is describes as the extent to which high and low income individuals interact with each other within a neighborhood or community. Chetty’s research shows that the more "cross-class" interactions a community has, the better chance the children of that community will have for upward mobility.? This is not to say that other factors don't matter, because of course they do. But his research led him to this observation.

Now, take a minute to really think about this concept as it applies to your own life. Do you predominately interact with people from the same, higher, or lower socioeconomic position? Did you grow up in a community, go to a school, or belong to a club where cross economic class interactions were commonplace? If so, how did that impact you? For myself, listening to this podcast and digging into the research sent me on a trip down memory lane. It made me think about the people and the interactions that were so pivotal for me being in the position that I’m in today.

As background, I grew up in a small town in Canada, had a very modest upbringing, and I am a first generation university graduate. Growing up, I did not know people who were "rich". I did not have friends whose parents were doctors, lawyers, or financial professionals, but I did have a television, and I watched shows like Dallas and Dynasty. To be honest, I wanted things that money could buy. These kinds of shows sold the idea of "The American Dream" and I bought in.

Both of my parents worked outside the home and valued education, and between my part time jobs, scholarships and the affordability of higher education in Canada compared to the US, I was extraordinarily lucky to be able to get a high quality education without incurring debt. That said, it was through some chance encounters, not to mention some wealthy men's philanthropic efforts, that the doors of opportunity really opened for me. Those chance encounters included partying with some business majors one night who talked me into switching my major. Then there was a group of successful finance guys created the Portfolio Management Foundation , for which I had the honor of being selected, which in turn helped me to land a job at Goldman Sachs in 1988.

I’m not sure if these are exactly the type of cross class interactions that Chetty describes in his research. But to me, it serves as an example of how exposure to people with diverse backgrounds can impact the opportunities you receive, the doors that can be opened or closed, and the path that ultimately becomes your life. I recently had the opportunity to talk more about my life's path in this just released podcast with McKinsey Digital. Subjects explored include my path to becoming a bodybuilder, the above mentioned partying, and how I became so passionate about women's financial engagement.

Back to Chetty. While his research clearly shows that certain neighborhoods and counties offer children better opportunities for future success, he is quick to point out that this doesn’t mean the solution is for everyone to simply pack up and move to those counties. Of course that is not possible, and there are so many other factors, including deeply entrenched systemic inequities, that affect the opportunities of individuals and groups. That said, he suggests that by studying why certain counties have higher correlations with upward mobility, we can stage additional interventions in other communities to replicate these conditions. For example, if higher levels of cross class interactions can help with upward mobility, then efforts can be made to create opportunities for those types of interactions, both by individuals themselves and broader community efforts (dig into his research for policy implications).

Chetty also talks about what he terms Friendship Bias, wherein even if opportunities exist for cross class interactions, the tendency is for people to socialize somewhat exclusively with those of their own class. Again, take a minute to think about your own life and with whom you tend to spend most of your time. When you go to social events of various kinds, who is in the room? Are they of a similar socioeconomic status to you or not? Can you think of examples where having interactions with people who have access to much higher levels of resources helped you? And equally important, have you used your resources, your social and financial capital, to help others? Chetty’s observation is that friendship bias hinders upward mobility.

So what does all of this mean? I think it’s fair to say that we all want to live in a world, a country, a state, a city, a neighborhood, where the dream of achieving upward mobility is not only alive and well, but the likelihood of it actually coming true is high as well. There are so many factors that come into play, and I am not reducing it to "just mix it up more". That said, if it turns out that a more intentional and generous building of social capital through economic connectedness can contribute to better outcomes, the great news is that we all have an active role to play. Connecting it back to what Robin so brilliantly wrote in our ShePlace newsletter:?

“Social capital is a vital asset, especially at work. A fundamental principle of every industry without exception is, “relationships, relationships, relationships.” We are all in the relationship business, whether we realize it or not, because relationships are critical to our success, both at work and in life.

So how do you build your social capital? You fill the well by making deposits through meaningful interactions. Relationships should always be treated as reciprocal, not transactional, and authenticity has to be the driver. Show up as who you are for things you care most deeply about. Join networks, make introductions and referrals, volunteer, and be generous with your time and advice. Favors and goodwill will always be compounded with interest. I make it a habit to connect people to each other, even if stakes are low and there is nothing in it for me personally. This builds trust, and if I ever need to pull from the well, I know I will have advocates who will vouch for me. Abundantly growing your social network and connections will lead to a relational wealth that will flourish over time.”

My invitation to you is to be much more intentional about how you are building and sharing your social capital, as well as other forms of capital. I also invite you to be aware of friendship bias. Our lives, all of our lives, are made richer by the quality of our relationships. Loving each other, supporting each other, helping each other with advice, introductions, references, work opportunities, and at times, access to financial resources, is what makes our world work, and it helps to pave a path towards greater individual and collective prosperity.

I am grateful to have discovered Raj Chetty’s work, as it has had a significant impact on our efforts at SheMoney, including how we have designed the ShePlace Community as a welcoming place, created for women+, who are interested in supporting others and advancing their own well-being. We hope to help our members grow and share their social capital, while recognizing that your value as a human being is not dependent on your zip code, education, job title, bank account, or who you know or don't know. We all have different levels of resources available to us, and the more we can share those resources - time, treasure and talent - the better off our society will be as a whole.

I welcome your thoughts on this piece and invite you to share additional resources on this topic in the comment section here on LinkedIn. And if you know Raj Chetty, please send this to him. He is someone I would very much like to meet.

*I do not know, nor have I spoken to Professor Chetty in writing this piece. I did my best to represent his work. Hoping I got it right.

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Join me on February 22nd for the SheMoney Workshop Series! The theme for February is: Overcoming Overwhelm. Join us to hear from these two incredibly dynamic facilitators and executive coaches Angie McArthur and Luana. We are excited to offer a free virtual version of this event so that folks may join from far and wide. In Salt Lake City? Join us in Person.

If you are craving a little more on this topic of social capital...

NY Times Article 8/22 - Vast New Story Shows a Key to Reducing Poverty: More Friendships Between Rich and Poor

Bowling Alone: The Collapse and Revival of American Community by Robert D. Putnam - A landmark book on the topic of social capital.

Five Kinds of Capital: Useful Concepts for Sustainable Development - This report has a more detailed definition of the different types of capital and why it is essential for economic development.

Bamboo HR defines upward mobility, why it is important, and how to build it into company practice.

The Good Life - An 84 year study on happiness. The conclusion? Having meaningful relationships is really good for your longevity.