Canadian Private Family Banking Explained

Now if he can go and get a car loan for a $5,000 car at TD bank or RBC bank for 5%, we're not going to charge him 5%, we're going to charge him 10%. In fact, we'll probably charge him more than that. 16 year old, doesn't have any credit, probably a pretty bad risk for a bank to take. And we're looking at lending on a vehicle that he otherwise probably wouldn't be able to get a loan on. So all those factors, if we were a traditional lender, we would just throw our hands up in the air and say, sorry, you know, we're not going to take that deal. But we are going to take that deal because it's my son.

So how do you go and set up a private family bank? Lots of people are asking questions about private family banking. What is private family banking? How can I participate in private family banking? Why haven't I heard of private family banking? And if it's so great, why isn't everyone doing it? So there's a ton of questions here. I'm going to tackle some of these in this video and I'm excited to talk about private family banks. So let's talk first about one of the most well known families who operates with a family banking concept. You may have heard about the Rockefellers before now. There's a great book out there called what Would the Rockefellers Do? It's a great book, it talks a lot about this premise around family banking. And we can go back in history and we can look at some of the wealthiest families of the world and we can see those that were able to maintain, keep and preserve their wealth through multiple generations. Like the Rockefellers versus the Vanderbilt family. At one time they were one of the wealthiest families in North America. And only a few short generations later, pretty much all the wealth had been squandered away. A lot of the difference between those two families was in the thinking that was passed down to the preceding generations and how they were required to engage with the family's money, specifically through the premise of banking. And so one of the things that allows the Rockefeller family to keep having money, work for them, work for the various members, is by cycling that money through. If you want to take a loan or get access to money for a project or an investment or, or something that you want to do, you have to kind of write like a business proposal, submit it to the, basically the banking system of the family. They say, yep, this looks like a good deal and they'll lend money on it, there's a repayment schedule, there's money changing hands there. So that money's always coming back into the Rockefeller family system. So the same premise that allows that to work on a large scale for them can work on a small scale for you. It's all about how we think and how we want to interact with money throughout the family long term for the kind of things that we're going to use. So I'm going to give you a quick example. I have a son presently, he's six years old at the time of this recording. And you know, if he's anything like me, when he turns 16 years old, he's going to want to get his own car. And so when that happens, I'll be hopefully a very proud dad, probably a little bit scared. But when he wants to go get his first car, either he's going to buy one on his own or maybe he'll end up getting kind of a hand me down vehicle that my wife and I have. That might be the case in that circumstance. Well, probability is he would have to earn the ability to have that car. If he had to go buy his own car, he'd have to have money to do so. Now he's either going to come to the bank of dad or he's going to have saved up his own money. So either way we're going to work through the situation how that's going to work. But if he's going to get a hand me down vehicle, that vehicle has a price tag to it. It would go for something on the open market, it's going to go for something when my son wants to get that vehicle as well. Let's just put a number to it. Let's say it's $5,000. Well, my son may not have $5,000 at that time. So we could say, you know what, the family banking system is going to lend you that money. Now, we don't have to actually have to exchange any dollars to make that happen. Basically the car is paid for. We're simply going to say, look, this is the value of the car. You're going to make payments on this car over time. Now, when my son makes those payments, we'll work out a loan schedule. We'll create a loan amortization. You can use a free online loan amortization calculator and we'll check off every month or every week. However he decides to make those payments that we mutually agree to, we'll write a simple contract. There's lots of those available online Law Depot and lots of places you can go get them where he will be on the hook to make those payments. We're also going to charge him an interest rate. Now if he can go and get a car loan for a $5,000 car at TD bank or RBC bank for 5%, we're not going to charge him 5%, we're going to charge him 10%. In fact, we'll probably charge him more than that. 16 year old, doesn't have any credit, probably a pretty bad risk for a bank to take. And we're looking at lending on a vehicle that he otherwise probably wouldn't be able to get a loan on. So all those factors, if we were a traditional lender, we would just throw our hands up in the air and say, sorry, you know, we're not going to take that deal. But we are going to take that deal because it's my son and we're just going to make an appropriate arrangement for how we're going to go about the repayment model. So once we, everyone agrees to what the repayments are, we might be a little bit flexible, negotiable, my wife and I, on when and how we will go and accept payments. Like as an example, if my son has a part time job and he only works during the school year or he only works in the summertime, he earns a bunch of money in the summer. I don't know, delivering newspapers, logging whatever, you know, cleaning streets, whatever that thing is that he's going to end up doing. And that's when he earns the bulk of his revenue. Maybe we'll take more of the payments during that two month period of time and we'll take a smaller payment throughout the rest of the year when he's in school. In other words, we get to dictate and choose the terms. This is where family banking comes in. There's an intention to repay. We're setting up clear guidelines. And as the money comes back into my wife and I's hands, we can take those dollars and we can repurpose those dollars for something else that the family wants to do. Family vacation. It could go to the future. It can go to my son's policy that we have on him, his infinite banking policy. And if that's the case, when I eventually pass away and I'm gone, I die or my wife dies, there's going to be an estate that's left over for my children. They're going to get every single dollar that they pay into our family system over the span of their lifetime. They're going to get it back when mom and dad are gone because we're structuring it that way. So there's no reason for them to not pay 10% or 15 or 20% interest to the family bank if they're going to end up getting all the money back. And if they're putting that extra money into the family system, that's cash flow that, that my wife and I can use as that money is building up and building up and building up. Now we can go and we can choose opportunities that come up as a family. Maybe we want to invest in a bitcoin mining operation, maybe we want to go and buy an apartment complex. And because we've been making these payments back as a family, we're accumulating a pile of capital that will help us grow and accumulate more cash flow and other things we want to do. It increases our capital base so that we have more resources to choose opportunities that will hunt us down. So this just gives you a bit of an idea as to how family banking can work, how you can talk through these things as a family and you can set rules of engagement. You have to have important rules of engagement. If you don't have those in place, the whole thing falls apart and you end up like the Vanderbilt family. See, as human beings, we operate very well with an incentive. And one of the things that'll be an incentive for my son when he gets his first car will be the keys to that car. Because if he doesn't make the payment, the keys are going to be taken away and he won't be able to drive that car until he makes good on his payments. That's an incentive. You know, if I had a bank loan with a third party bank, Ford Credit, let's for example, and I didn't make my payments to Ford, well, sooner or later someone's going to come and they're going to seize that vehicle and I won't be able to drive it anymore and they're going to ruin my credit. That's an incentive. And so the same incentive system needs to apply when you're talking about family banking. If you don't have that in place, you're going to end up building your banking system on rocky ground. A foundation where the concrete hasn't set. You got to remember it's important to set a solid foundation when you're having really important long term financial discussions with other members of your family. Specifically when you're talking about your kids and your grandkids. We all want the best for our children. And for our grandchildren. But if we can teach them how to think long term about how we can all utilize and multitask capital over a lifespan, multiple lifespans, what an incredible way of working together can be created. What. What prosperity that's available to us simply by the way that we think. I hope you enjoyed this video talking a little bit about how you can set up a private family bank. Make sure you learn more about becoming your own banker. Get a copy of the book Becoming youg Own Banker Today. There's a link down below. Check out the other content that's showing up on the screen. Continue your journey of learning and make this a prosperity day for you.