Family Bank and How It Transformed My Family Finances

by
Heather Warf
January 20, 2023
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Banking and financial services are among the world’s largest and most affluent industries. This is because banks are on the receiving side of the financial system, while most consumers are on the paying side.

In this blog, I will share a bit about my family’s journey toward getting on the receiving side of the financial system by establishing a family bank, thanks to a revolutionary method taught by George Antone and the Fynanc Team.

What is a family bank?

Imagine that your teenage child wants to purchase their first car. They have several options to finance this purchase:

• Save for an extended period and use all their cash to make the purchase

• Take out a loan, undersigned by you, and make monthly payments with interest and loan costs going to a financial institution

• Or, they can borrow money from the family and negotiate manageable monthly payments, including interest, and grow the family’s overall wealth while achieving their goal

A family bank is a private financing system where family members make a lump sum or monthly contribution to create a capital pool controlled by the family collectively. Individual members of the family group can tap into this capital to finance purchases that would otherwise be funded using a credit facility. The terms of the loan, including repayment and interest, are decided by the family as a collective. Interest on family bank loans benefit the family’s capital pool rather than going to a third party. Therefore, the family is on the receiving rather than the paying side of the financial system.

A family bank is a financial vehicle that allows a family to use the same methods the formal banking sector uses to create wealth through debt. Most importantly, the family bank provides a safe and controlled environment for all family members to learn, implement, and practice the skills needed to become financially literate and competent.

Benefits of the family bank method

Think about a time when you had a conversation about your finances, and the person listening seemed genuinely interested in the information you were sharing. They might have been asking specific questions or leaning in and nodding their head. How did that conversation make you feel? You felt heard and would want to talk to them again, right?

Now, when was the last time you had this experience with your banker or financial adviser?

The formal banking sector has one primary objective – to extract as much profit as possible from consumers. The family bank uses the same strategies as banks to grow wealth but also serves to protect every family member’s best interests. The family bank has a vested interest in ensuring everyone is moving forward together, as well as individually, to achieve collective and personal financial goals.

“Being a family banker is one of the best decisions my family and I have made as we work towards improving our family’s financial future. Having a family bank gives my family a safe and benevolent platform to discuss personal and family finances and develop a financial management mindset.” - Heather Warf

The family bank is a safe vehicle to teach and nurture the skills necessary to be successful and responsible personal financiers. For younger members, it provides an opportunity to borrow money for the first time without the risk of taking out a high-interest loan that comes with potentially life-changing consequences. The family bank allows young people to learn how to manage their finances in a safe and enabling environment while creating an income-generating asset for the whole family.

The family bank supports family life

According to a recent survey conducted by the Institute for Divorce Financial Analysis, 22% of divorces in North America are attributed to “money issues”. These issues don’t only refer to money scarcity but also include a lack of transparency or incompatible levels of financial literacy between partners.

Your family bank can create a safe place for critical conversations about finances to take place in a loving and supportive environment.

“In addition to growing our family’s finances, the family bank provides the space to strengthen communication and cohesion within our family.” - Heather Warf

A key aspect of the family bank model is to dedicate time for ‘family finance meetings’ where everyone is encouraged to be open and honest about their needs and concerns. Instead of relying on algorithms or impersonal assessments to establish a member’s creditworthiness, the family bank is able to extend trust and implement consequences based on each individual’s nuanced personality, life stage, situation, attitude, and behavior without risking potentially life-long consequences such as a bad credit rating or bankruptcy.

Getting everyone involved in the family bank as early as possible improves family finances but also serves as a starting point for developing good personal financial habits for future generations, breaking the poverty cycle, and creating meaningful generational wealth.

How to start your own family bank

Now that you have some understanding of the benefits of establishing a family bank, you might be wondering how to get started.

STEP 1: Adopt the right mindset

First, setting up a family bank is not hard and does not take much money to begin. What you will need is a passion for learning and a willingness to share openly and honestly with your family members about personal and family finances. It is important to be clear on the vision, mission, and goals you want your family bank to achieve and hold all members accountable for the success of your family bank.

Step 2: Decide on the founders of the family bank

A family bank can be established with just one founding member or multiple founding members, though the best practice is for one person or persons who are the income-generating primary caregivers within the family to take on the responsibility of establishing the bank.  

As a family bank founder, your role is to determine and implement the rules, guidelines, and procedures to be followed by all members of the family bank.

STEP 3: Funding your family bank

A family bank can be as simple as a basic checking account. One of the first decisions you will need to make is how you plan to fund your family bank. You can choose to make one lump-sum funding deposit, or you may want to schedule monthly or recurring contributions to expand the funds you have available to lend. And you can always use a combination of these methods or choose to contribute more money to your family bank in the future.

One key aspect that you need to keep in mind is that the money you deposit is no longer “your money,” as it belongs to the family bank. You cannot simply withdraw funds without following due process and applying for a loan, and agreeing on the terms, conditions, and interest on the loan, like you would with any financial services provider.

Step 4: Schedule family bank meetings

It is essential that you run your family bank like a business and adopt good business practices from the start. A cornerstone of good business practice for your family bank is regular, scheduled family bank meetings.

Each meeting should include a review of the financial capital and human capital in your family bank, a discussion about outstanding loans and loan requests, and a time for education.

By human capital, I am referring to the skills, knowledge, and experience possessed by each individual within the family.

During your first few family bank meetings, much of the conversation will likely revolve around what is a family bank, who you wish to have as members of your family bank, and why a family bank is important to you and your family. You might even use this blog post as a reference to start the conversations during your first few family bank meetings.

Family bank meetings should be uplifting and encouraging to other members. Even if members have different financial habits, you can learn from one another and help understand why some habits are more beneficial than others. The family bank is a place of learning and growing our human capital, financial capital, and learning the skills to manage personal and family finances.

The family bank works best when it is an inclusive family affair. Include young children, so they can start benefiting from the educational opportunities provided by the family bank from a young age.

Step 5: Assign roles within your family bank

The primary function of your family bank is not only to create financial capital but also to grow the human capital within the family.

The first step is to take inventory of the human capital already present in the family bank. Here are a few questions to get you started assessing the experience and skills of your family bank members:

• Do they have knowledge of opening a checking or savings account and how to keep records of the transactions?

• Has a member taken out a loan from a financial institution?

• Does someone have knowledge of stocks or bonds?

• Is a member good at organizing?

• Who is good at record keeping and time management?  

A very effective way to ensure that you are using and growing the human capital within your family bank is to assign roles that play to the strengths and support the weaknesses of members. Roles may include host, secretary, treasurer, loan officer, and education coordinator.

A great organizer could be the perfect education coordinator. A person who has good time management skills might do well to host the meeting and make sure you stay within the meeting time and cover all agenda items. Someone who has experience taking out loans might be your first loan officer.

The host’s responsibilities can include scheduling the meeting, writing the agenda, and making sure all members are aware of important information prior to the meeting. They will also be tasked with keeping the meeting moving forward and on track.

The secretary should keep detailed minutes to serve as the records for the family and the family’s financial journey.

The treasurer will be responsible for any accounts held by the bank and should present a financial report during the meeting.

Loan officers collect loan requests, which will be presented and voted on during the meeting. After loans are approved, they prepare loan agreements and are responsible for verifying the receipt of loan payments.

The education coordinator will plan education topics for each meeting, assigning members to research, prepare and share at the meeting about the topic they have been assigned.

Each one of these roles has the potential to teach real-life skills that can empower members, especially youths, to be more effective in their present and future lives.

Step 6: Operationalizing your family bank

Once you have founded your family bank, decided on an account and funding solution, set up family bank meetings, and assigned roles within your family bank, it’s time to turn it into a functional financing system.

A member of your family will fill out a loan application, which includes information about the loan amount, the purpose of the loan, and on what terms they are willing to pay the loan back.

During your family bank meeting, the family discusses the loan and either approves or denies the funding.

If approved, the family will need to agree on the terms. Most family bank loans are amortized (payments include principal and interest), at a fair interest rate (compared to what is available in the market), and the duration that works for the borrower. Many times, one to three years is a great starting point. Now the borrower signs a promissory note, and the loan is funded.

Beginning your family bank journey

Once you have read this blog, you will have a basic grasp of what is needed to begin your family bank and start an unbelievable journey.

My hope is that I have encouraged you to take the first steps in joining hundreds of other family bankers and changing your family’s financial trajectory.

Write down today’s date as the start of your family bank and put some money in your family bank account even if it’s just ten dollars in an envelope, your family bank is now open and ready for business. Schedule and host your first family bank meeting, maybe a family dinner, where you discuss the information you have read here with your family and share your appreciation with them for joining you as family bankers.

Congratulations, and welcome to being the founder of your very own business in one of the world’s greatest industries!

If you have any questions about how to start your own family bank, schedule a call with a member of the Fynanc team to learn how you can access all the educational material and coaching assistance needed to become a personal financier in 2023.