In their recently released book, The 100-Year Life: Living and Working in an Age of Longevity, London Business School professors Lynda Gratton and Andrew Scott explore how increased life expectancies affect the ways people should be planning their finances, career choices and lives. In this excerpt from the chapter entitled “Intangibles,” Gratton and Scott discuss the non-financial implications of a long life.
FOCUSING ON THE PRICELESS
As life elongates, periods of work become more extensive, savings more central, and across the passage of time, major transformations occur in industries and jobs. This is the broad sweep of a 100-year life. But to think about this only in terms of finances and work is to negate the very essence of being a human. The gift of a long life is fundamentally a much more intangible gift. In this chapter we focus on the priceless—on intangible assets.
Intangible assets play a crucial role in all our lives. For most of us, while money is indeed important, it is not an end in itself. We make money for what it can deliver for us. For most people, a good life would be one with a supportive family, great friends, strong skills and knowledge, and good physical and mental health. These are all intangible assets, and it is not surprising they are as important as financial assets when it comes to building a productive long life.
However, these intangible assets are not independent from tangible ones; rather, they play an important reciprocal role in the development of tangible assts. Take, for example, the strong skills and knowledge without which is it likely that career and earning potential will be very limited. The same is true of a network of supportive and knowledgeable friends, as it turns out that they are crucial for optimizing transitions and broadening career choice. And if you are in bad health or have an unhappy family home, then the stress that this creates significantly reduces productivity, empathy and creativity at work.
So intangible assets are key to a long and productive life—both as an end in themselves, and also as an input into tangible assets. Indeed a good life needs both, as well as the balance and synergies between the two.
ASSET MANAGEMENT
Perhaps you have not thought about friendships and knowledge or health and fitness asassets. Most of us would not use this term in everyday life. But the idea of these as assets is a crucial framing for a 100-year life. An asset is something that can provide a flow of benefits over several periods of time. In other words, an asset is something that lasts for a while. So clearly, as life elongates, a major challenge is how these assets are managed. While assets can last for several periods, they usually suffer from some sort ofdepreciation—that is, they diminish over time due to usage or neglect. This means that assets require careful maintenance and mindful investment. Viewed like this, it is clear why we would consider a friend, or knowledge, or health as an asset. Friends and knowledge won’t disappear in a day, but if you fail to invest by not keeping contact with a friend or not refreshing your knowledge, then they will eventually depreciate and possibly even disappear.
Intangible assets differ significantly from tangible assets such as housing, cash or savings in the bank. Tangible assets have a physical existence and so tend to be relatively simple to measure and define. As a result, they can be easily priced and readily traded and are therefore fairly straightforward to understand and monitor: bank statements can be checked; the price of a house verified on the internet; pensions followed carefully. Intangible assets such as friendships and family, physical and mental health, skills and knowledge lack this obvious physical existence, which creates challenges in how they are measured and whether they can be traded.
Some intangibles can be relatively easily measured. Clearly, measuring your health and vitality is reasonably straightforward, and the health checks most of us have are designed to do just that and remind us whether our health has increased or depleted over a period of time. The same is true of some forms of skills and knowledge. The examinations we sit and certificates we receive are a measure of our explicit knowledge, although tacit knowledge is inherently more difficult to measure. What of friendships and relationships? Most people have some understanding of their health of their most important relationships, though would struggle to quantify this understanding. There are also growing attempts by network analysts to measure the size, variety and interconnectedness of an individual’s network and, over time, to track the extent by which these are growing or depleting. Rapid developments in augmented technology—which measure many aspects of daily behavior such as miles walked, time spent talking with friends and so forth—will add to the sophistication with which intangible assets can be measured.
The evasive and elusive nature of intangibles and their often subjective character means that pricing them and trading them is sometimes impossible and invariably difficult.
So some intangibles can be directly measured quantitatively or through a proxy, some only qualitatively (increasing/decreasing), while others remain elusive to measurement. Some of these measurements can be objectively compared—for example, the extent of education—while others, such as happiness, cannot. The evasive and elusive nature of intangibles and their often subjective character means that pricing them and trading them is sometimes impossible and invariably difficult. Further, as the political philosopher Michael Sandel argues, there is something even more profound about some intangible assets that make them “priceless” and impossible to trade. Often there is something about their very essence and their history that makes intangible assets non-tradable. You simply can’t buy (or indeed create) a lifelong friendship when you are in your 80s; in fact, perhaps the very definition of friendship means it can’t be bought at any age.
The fact that intangibles can’t be bought or sold in a marketplace makes planning and investing in them more complex. By comparison, decisions about investing in tangible assets are relatively straightforward. This is in part because these decisions are reversible. A house can be bought and sold at will, and money can be moved from the stock market to a pension. And because tangible assets can be easily priced and bought and sold, they are easily substitutable: A house can be sold and another one bought; wealth can be shifted from equities into cash.
Intangibles, however, are neither substitutable nor reversible. If you move country you cannot sell one friend and buy another in a new place, and if the knowledge you have mastered is no longer valuable, it cannot simply be sold and new skills bought. The impact of this irreversibility is that care has to be taken when choices are made about investing in intangible assets, and there has to be concern about a sudden loss in value. Just as an earthquake can render a house worthless, so external shifts can make intangible assets lose value.
