Chapter 7 Financial Capital

Page 1: Introduction to Tina Fernandez's Journey

• Tina Fernandez's Background

  • First in her family to aim for college.

  • Daughter of immigrant farm workers in the impoverished Rio Grande Valley, Texas.

  • Started working in fields at age 6; accustomed to hard work.

• Life Changes

  • Marrying high school sweetheart as a way to pursue support for college.

  • Marriage lasted only three years, leaving her a single mother.

  • Returned to live with parents for help with parenting and financial support.

• Economic Challenges

  • Economic downturn in 2001 made job search difficult, even with a diploma.

  • Found a part-time job waiting tables, earning less than minimum wage.

  • Relied on parents for childcare and support; father aided with car maintenance.

Page 2: Transition to Business Ownership

• Career Progression

  • Good work ethic led to promotions; became assistant manager, then manager of a restaurant.

  • Adjusted to management; developed a vision for a restaurant offering traditional, healthy foods.

• Financial Limitations

  • Initial $7,000 for business start-up was insufficient.

  • Explored community resources for starting her restaurant.

• Networking and Support

  • Joined a small-business development center for women to get business advice.

  • Attended chamber of commerce meetings to connect with local businesspeople.

  • Utilized advice from investment bankers on alternative credit sources.

• Growth and Success

  • Opened multiple restaurants, focusing on affordable, healthy food, helping the local economy.

  • Contributed to son's college fund and improved living conditions for her family.

Page 3: Concepts of Financial Capital

• Definition

  • Financial capital refers to money and other monetary instruments necessary for starting and maintaining businesses.

• Key Characteristics

  • Money can be used for consumption or investment purposes.

  • Investment in financial instruments increasingly dominates over investments in goods and services.

  • Shift towards financialization as trends span beyond traditional economic activities, focusing on profits derived from investments.

Page 4: Understanding Financial Capital

• Forms of Financial Capital

  • Capital vs. Consumption: Resources can generate other resources; e.g., a car can be a capital asset if used for business.

  • Wealth vs. Income: Wealth represents accumulated assets, while income indicates money flow within defined periods.

• Housing Context

  • Homeownership is critical, with tax structures in place to encourage it, but trends indicate rising foreclosures affecting these rates.

Page 5: The State of Homeownership

• Rural vs. Urban Rates

  • Homeownership rates higher in rural areas compared to urban but declining overall.

  • Older residents in rural areas more likely to own homes outright, contributing to trends in wealth accumulation through property.

• Economic Trends

  • Declining income levels for younger populations leading to higher rates of mortgage-free homes among older individuals.

  • Comparison of mortgage arrangements and implications of foreclosures.

Page 6: The Financial Landscape

• Investments and Returns

  • Sale of financial assets, like houses, reflecting capital gains or losses based on market value fluctuations and associated taxation.

  • The risks present in speculative investment practices observed during housing market changes.

Page 7: Impacts of Accounting and Oversight on Financial Stability

• The Role of Accounting

  • Emergence of capitalistic practices linked to tracking financial exchanges accurately; beyond cash-only practices.

• Risks in Financial Markets

  • Acknowledgment of the role of financial regulations to enhance community stability and prevent irresponsible lending practices that lead to widespread financial failures.

Page 8: Corporate Profits and Employment Impact

• Profit Dynamics

  • CEO compensation often linked to company performance metrics, incentivizing job cuts to maximize profits.

• Job Market Shifts

  • Changes in labor practices lead to more contract work with fewer benefits, impacting traditional employment landscapes.

Page 9: Financial Capital Growth vs. Community Welfare

• Challenging the GDP Perspective

  • Critics argue that GDP growth doesn't equate to social well-being; positive economic digits can mask underlying social issues, such as wealth inequality.

• The Genuine Progress Indicator (GPI)

  • Measurement of economic size adjusted for costs of negative social impacts; measures sustainability.

Page 10: Various Forms of Capital in the Economy

• Built Capital

  • Defined as tangible assets like machinery and buildings; highlighted separately from financial capital due to their role in providing resources but lower liquidity.

• Public vs. Private Capital

  • Distinction between capital from individual investments (private) and capital raised for public infrastructure projects (public) important for community function.

Page 11: Community Needs for Financial Capital

• Historical Context

  • U.S. government supported land privatization for community growth, providing a foundation for entities to form private capital investments.

• Changes in Community Financing

  • Rural community reliance shifted towards greater dependence on federal funding sources due to declining populations.

Page 12: Societal Impacts on Financial Capital Utilization

• Public Challenges

  • Legislative implications shaping the availability of financing for public goods; lack of nuanced financing for localized needs leads to compromised community interests.

• Community Financial Institutions

• Historically oriented to agriculture and based on local lending practices that catered to specific community needs.

Page 13: The Role of Rural Financial Institutions

• Community Names Reflecting Financial Needs

  • Insights into rural banking history signaled challenges faced by loan structures encouraging localized investment.

• Loan Assessments

  • Based on net worth and local knowledge; however, current trend favors credit ratings over personal relationships within banking.

Page 14: Impacts of Wealth Inequity

• Equity Accumulation

  • Discusses mechanisms in which wealthy individuals typically hold advantages in securing additional capital.

• Indicators in Granting Loans

  • Focus on income and debt influences loan acquisition; those demonstrating capacity and financial management are at a clear advantage.

Page 15: Understanding Sources of Capital

• Capital Generation Necessities

  • Provisions for capital utilization and generation must adapt culture reflecting agriculture-based income flows in rural communities.

• Banking Shifts Toward Service Models

  • Exploration of diversified finance beyond traditional roles adopted by banks.

Page 16: Expanding Capital Opportunities

• Looking Beyond Traditional Financing

  • Encourages understanding of bonds and their roles in raising investments at community levels.

• Capital Necessity for New Ventures

  • The dynamic of equity capital shows challenges for businesses lacking collateral for traditional loans, pushing the need for additional avenues.

Page 17: Emphasis on Bonds and Equity Financing

• Understanding Bonds

  • Mechanism for long-term financing through structured agreements catered for community-based businesses.

• Community Engagement

  • The finance growth dynamics shifted extensively towards accommodating new market participants.

Page 18: Changing Financial Environment

• Evolving Regulations

  • Overview of the externally influenced financial environment affecting rural access to capital.

• Declining Community Institutions

  • Summarizes the effect of decreased regulations on lending practices, the consequent expansion of capital mobility, and challenges for rural areas.

Page 19: Innovative Strategies for Capital Retention

• Examples of Community Initiatives

  • Highlighting community-led ventures and creative financing structures that have emerged as responses to the economic landscape.

• Mobile Capital Dynamics

  • Assessment of how mobile financial resources impact rural capital retention efforts and hinder local community development initiatives.

Page 20: Recognizing Alternative Financing Models

• Governor’s Role

  • Overview of community bonds being important in encouraging local business by retaining ownership and benefits within the locality.

• Public-Private Collaborations

  • Discusses instances of collaboration leading to increased investments within local municipalities on specified ventures.

Page 21: Financial Literacy and Community Financing

• Long-term Focus on Financial Investments

  • The need for training within communities to ensure understanding of local financial management and investments.

• Micro-Lending Innovations

  • Instances where investment models linking social strategies can benefit rural economies.

Page 22: Conclusion and Forward Outlook

• Future of Financial Capital in Rural Areas

  • Reflects on the innovative partnerships needed to keep financial resources within rural communities.

• Recommendations for Sustainable Practices

  • Encourages designing models that account for evolving economic landscapes in delivery of business support.

Page 23: Summary

• Key Concepts of Financial Capital

  • Recapitulating the necessity of diverse sources of capital for community and business viability.

• Understanding the Changing Landscape of Financial Capital

• Outlining essentials in the evolving dynamics of capital financing, particularly in rural areas.

Key Terms

• Financial Asset: Money/assets available to meet liabilities.

• Capital: Resource that produces other resources.

• Capital Flight: Movement of funds to maximize earnings elsewhere.

• Capital Goods: Goods utilized for producing others.

• Liquidity: Ease of converting assets into cash.

• Private vs Public Capital: Individual investment vs government/community-funded resources.