Family Banking – What It Is And Why You Need It
The family bank was first founded in 1984 by Titus. K. Muya. It has been in existence for decades with proves. Most families have established generational businesses and empires as a result of a good family banking system.
If you are not already familiar with the term family banking, you might now start to wonder – what is family banking? and what is the importance of family banking or family banking system to me?
You should know that your questions and that of many others are what inspired the need to write this article and owing to the in-depth research and consultation of financial experts that was undertaken when writing this article, we trust that all your questions will be satisfactorily answered such that if after reading this piece you are posed with questions about family banking, you will be able to give a satisfactory response.
What Is Family Banking?
The following are good definitions of family banking.
Family banking is a collective effort among family members to save money for a particular goal or a project, which could be an educational trust fund, long-term, or short-term projects. Family banking can also mean the act of family saving for future needs by doing things like buying properties, funding higher education for kids, and others. Also, family banking can serve as a means to solve financial emergencies in the future generation.
Importance Of Family Banking
The following are the amazing benefits you stand to gain by engaging in family banking.
1. A Firm Saving Culture
Sometimes when plans have been made to start saving in the home, these plans could be truncated owing to the fact that keeping cash where it can easily be accessed can bring about unnecessary spending.
This is however not the case with family banking as with this banking system family members can keep money away from the eyes of each other to ensure their goals as a family is accomplished.
2. Provides Educational Sessions
Educational sessions are provided to family members who embark on family banking by their host bank because it is easier for families to build their capacity to manage, grow family wealth, and the family business when they are properly educated.
3. Useful For future emergencies
Dr. Ray and his wife Lio opened a family joint account in which they deposited 15% of their income. Few years down the line their second daughter had cancer of the breast and needed a huge sum for operation.
At that moment, they couldn’t raise the amount required for the operation so they had to use the only alternative they had which was the saving in their family joint account. The operation was successful and soon the family moved on with their lives.
Sometimes some situations that will need immediate help will arise, and the only way out of it could be that tiny investment or savings you are making today. Let me also share with you the story of a family in Colombia called Coldrados. Mr. Coldrado was a salary earner, who usually found it difficult to save but rather spent all the money he earned.
Unfortunately for Mr. Coldrado, he lost his job due to the coronavirus pandemic lockdown. He had no savings and there was nothing to fall back to. Life became so tough, and meeting up with family upkeep was a huge challenge for Mr. Coldrado and his family. You need to have a family banking system so you won’t end up like the second story (Mr. Coldrado).
4. It Gives Financial Fence
A financial fence means learning to live with less than you make so you can save money and have money to invest. It helps you to avoid unnecessary debts and borrowing. Living a life of contentment is key to having a solid family banking structure.
5. It Helps To Keep Financial Temptations Away
Sometimes when you have or you’re expecting cash, you’re tempted to purchase some things you don’t need. Family banking will help you save up that money and put it to better use.
6. Creates Good Opportunities
Family banking helps to create opportunities for individual members of the family. I remember while growing up my dad lost his job. While waiting and hoping to get another job, he opened our family savings, and to our greatest amazement, within some months of opening it, he had something good enough to begin a business.
With our savings, we realized enough to rent up a store and get some supplies. Soon enough we started our laundry and cleaning services which later grew into many laundry stores and cleaning agencies.
7. Increase Family Assets
Investing is not a day’s work. It takes time, patience, and continuity for you to achieve your goal. If for instance, you invest thirty percent of your monthly income into your family account for 10years. You’ll be able to lay assets /properties ten years down the line. The above explanation will now be demonstrated using the following illustration.
- Earns 10,000 dollars (Husband)
- Earns 5,000 dollars (Wife)
- Have three kids
- Goes on vacations twice a month
- Owns two cars
- Rents a big new house
- Eats five times daily (each family member).
- Shops twice a month
- Saves nothing
- Earns 10,000 dollars (Husband)
- Earns 3,000 dollars (Wife)
- Have three kids
- Goes on vacations once a year
- Owns a car
- Rents a pretty comfortable home. Not too big
- Cut daily meals to thrice daily
- Shops twice a year
- Saves ten percent monthly
At the end of ten years who do you think will achieve more even when retired?
- Are happy with a good rented apartment.
- Own a car.
- Go on loans to buy properties and make an investment.
- Own two dream homes
- Own two cars
- Own an agency and two coffee shops
- Still saving.
Family B is comfortable as a result of the early family investment while Family A is still having fun and is on loan. Also, they are forced to cut down on their expenses as a result of late planning. This just goes on to reaffirm the saying that “If you fail to plan, you’re planning to fail”.
Family Banking System
This can be defined as a group of persons coming together to create a network in the banking sector to help the family and its descendants carry out financial services with ease such as taking loans at a very low interest rate without collaterals, making investments, etc. This banking system was started in the late 18th century by Mayer Amschel Rothschild.
How Does Your Family Bank Work?
1. It Is Being Operated By Family Members
It is opened and managed by some delegates from the family.
2. There Are Rules
As great as it sounds, the aim cannot be accomplished without rules guiding it.
3. Everyone Is Involved
When it comes to family banking, everyone gets involved. The richest put in according to what they are able while the least put in according to what they have. It is an agreement between family members, so everyone is involved to achieve the same goal.
It can be funded through the already existing family business, life insurance, and many more. Constant and consistent funding from every member of the family who is a signatory to the family account keeps the account flourishing and stronger.
5. Helps In Building And Preserving Wealth
With a family banking policy, you can have enough money to invest in an insurance policy which will eventually pay off in time to come. With family banking, you can also create an irrevocable trust fund. In either of the options above, you can continue to reduce your tax, preserve wealth and ultimately leave a legacy for the next generation (tax-free).
To be successful at family banking, you have to take a step into wealth creation for your immediate family and generations yet unborn. Also, remember It takes a collective effort from family members to make family banking work. For more amazing tips on how to save money check out this article