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The Family Bank

G. Wellthy

New Contributor
Read Millionaire Fastlane
Jul 21, 2018
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This felt like the right Topic Heading, but also could fit in the "Parenting Tips" section.

What is the pain?

How to get your children interested in entrepreneurship; a key value you want to pass down for generations. Harder to accomplish when they come from a comfortable life!

Unlike investments in financial assets, where investment theories abound and governance is routine, tools for families to govern their non-financial assets have only recently been developed and deployed.

(Fastlaners: I've worked on one I call The Family Bank. It is worth sharing with this community!)

Many people are still unaware of the value of investing in a family’s human and relational capital. For an excellent perspective on investing in your family, I highly recommend James. E. Hughes’ many teachings, but particularly his book, “Family Wealth: Keeping it in the Family”.

To summarize Mr. Hughes, the best way to defer the proverb of “shirtsleeves to shirtsleeves” for more than three generations is by investing capital into growing better people, and for those better people to invest time and resources into better relationships. Where financial assets are used to support those human and relational initiatives, the family can thrive much longer. However, if the family prioritizes the financial assets over those initiatives, the family wealth will more quickly erode.

The Family Bank will take many forms depending on the size and complexity of the family, but all definitions will include a focus on building a formal structure to follow when families invest in their human and relational capital. The first step when establishing a Family Bank is to derive an Investment Policy Statement. The IPS should include a clear decision-making framework for making investment decisions and a declaration as to how to prioritize the family’s values and goals in that investment process.

(Fastlaners: feel free to reach out for a draft IPS statement I use in my workshops)

There are many benefits for using a clear and unambiguous Family Bank process besides the primary goal of making better investment decisions. All other family members will clearly understand why capital is being deployed into specific family members and their endeavours. The other family members will also gain clarity on why the family has chosen certain investments of time and capital. This open communication and transparency is critical to family harmony. Of course, a formal structure around investing in risky pursuits can only improve what would historically be an area of poor returns.

(Fastlaners: basically, now you have money, your kids ask for money, you want to deploy it systematically to create better, more entrepreneurial people. I recommend loans that have super-favourable repayment terms, but attach strict personal development conditions on default. like building your mentor network, education (including hard knocks), even reading... conditions on the loan that lead to default keep your kid "on track" growing and not feeling like the money is a gift... I hate gifts even though they have the best tax implications)

Family wealth is the sum of its human capital, relational capital and its financial capital. Particularly for stimulating entrepreneurism, but for many other reasons, a well-structured Family Bank can grow all three capital sources in parallel, not at the expense of one another.
 

The Abundant Man

Gold Contributor
Speedway Pass
Jul 3, 2018
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In the simplest layman's terms, this is teaching to give and keep money in your family?
 

G. Wellthy

New Contributor
Read Millionaire Fastlane
Jul 21, 2018
14
15
19
In the simplest layman's terms, this is teaching to give and keep money in your family?
Use money, in a specific way, to make your family more entrepreneurial

(the specific way I call The Family Bank, and no, it isn't teaching how to give and keep... it is teaching how to deploy most effectively to build more entrepreneurial kids)
 

The Abundant Man

Gold Contributor
Speedway Pass
Jul 3, 2018
1,287
1,801
552
Use money, in a specific way, to make your family more entrepreneurial

(the specific way I call The Family Bank, and no, it isn't teaching how to give and keep... it is teaching how to deploy most effectively to build more entrepreneurial kids)
How does money make a person more entrepreneurial?
 

G. Wellthy

New Contributor
Read Millionaire Fastlane
Jul 21, 2018
14
15
19
How does money make a person more entrepreneurial?
Money if left unfettered, makes people LESS entrepreneurial. But properly deployed, money can help your younger family members develop.

For example, your daughter is 28 years old, and is having a hard time finding a career route that appeals to her. She likes the idea of owning her own business (maybe even your business someday) but needs development.

Using family capital to run an experiment for her development, is using money to make someone more entrepreneurial
 

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