Join Nate in this episode as he discusses the concept of family banking and reveals the three crucial steps to becoming a master family banker. Family banking involves keeping money within the family and mimicking the strategies used by wealthy families to create generational wealth.
The first step is to store capital, which can be done through dividend-paying whole life insurance policies. The second step is to establish a loan underwriting process, ensuring that loans within the family are handled professionally. The third step is to seek out win-win scenarios, creating mutually beneficial deals for both the family banker and the borrower. Family banking offers the opportunity to build wealth and keep money within the family for future generations.
Key Takeaways:
- Family banking involves keeping money within the family and mimicking the strategies used by wealthy families to create generational wealth.
- The first step to becoming a master family banker is to store capital, which can be done through dividend-paying whole life insurance policies.
- The second step is to establish a loan underwriting process, ensuring that loans within the family are handled professionally.
- The third step is to seek out win-win scenarios, creating mutually beneficial deals for both the family banker and the borrower.
Episode Resources:
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LIVING WEALTH PODCAST
DOLLARS AND NONSENSE: EPISODE 228 TRANSCRIPTION
Nate Scott [00:00]:
One of the best kept secrets to creating generational wealth is an idea called “keeping the money in the family”. The wealthiest families in the world have been doing this for centuries, and we can mimic what they do on a small scale through a concept called family banking. In this episode, I discuss the three steps you can take to become a master family banker. I’m Nate. I make sense out of money. This is Dollars and Nonsense. If you follow the herd, you will be slaughtered.
It’s incredibly freeing to know that your kids and yourself and your family, and as a whole, may never have to see the inside of a bank ever again in order to get money.
Nate Scott [00:46]:
Maybe they’ll want to. Maybe there will be a time you want to use the bank as an asset, you want to use other people’s money to your benefit. Maybe your kids will one day want to do that. But I know for me, in my own life, I would love. And I’m pretty much at the place now where the only reason I’d ever go into the inside of a bank to get money would be, if I want to use them, I don’t have to, whether it’s for mortgages or cars or investments, that the goal in my own life has been to build a system where I don’t need to use the bank ever again.
And I would like it to get so big that my kids would never need to go see the inside of a bank ever again unless they wanted to. And that’s the premise of family banking in general, is to build a banking system that will one day be able to provide for you and your family. So it’s bigger than just you and create a world where none of you have to go see the bank, none of you have to go sit on the other side of a banker and answer all their questions and go through the financial proctology exam of showing them everything you’ve ever done with money in order to get a loan.
Nate Scott [01:48]:
And so that’s one of the big benefits, by the way, in the infinite banking concept movement, of course, which we are a part of at Living Wealth, practicing infinite banking, the becoming your own banker idea, one of the offshoots of that. And one of the big reasons why so many people are attracted to it is because they don’t like banks. They don’t want to go deal with all the hassles of banking, and they really don’t want their kids to be slaves to the banks.
They would love to be able to keep the money in the family, is the concept where instead of somebody making all your kids making mortgage payments, car payments, credit card payments, student loan payments to a bank and financial institutions, if they can make those payments, back to mom and dad, let’s say back to the family banking system, keeping all of that money that used to walk out of the door, keeping it in the door, suddenly you can create a lot of wealth just within a family unit without having to go make a whole bunch of investments all over the place.
And so I’m going to dive into what I think are the three main steps that you can take to become a master family banker. I am going to be taking notes as I go along by sharing the screen. I’ve got a couple of calculators pulled up that I’m going to use as well once I get going. But the idea is fundamentally this, that there are three main steps that you have to be able to do.
Nate Scott [02:56]:
Some of them are pretty obvious in the banking business, you’re going to have to do certain things, and I think some of these may be well understood by you. But one more thing before we dive into those three steps, I do want to make it note that if your goal is family banking, you really have to see what you’re doing as getting into the banking business. And there’s some nuance to that.
You don’t have to think like a business owner to get into infinite banking per se the way you suggest you do, but you can own life insurance policies, you can do the infinite banking concept and not really think of yourself as being in the banking business. This is really you entering the banking business. You have to think more like a banker would think, which is going to be good for all of us, whether or not you have a family to be in banking with you or not. So let’s go ahead and dive into the three steps you have to take. The first step, I’m just going to make some notes as we go along.
Nate Scott [03:46]:
The first step that you’re going to have to take in order to become a banker, and this one’s the most obvious for sure, is that if you’re going to get into the banking business, banks have to store capital. Banks have to store capital, and there’s no way around this. If you’re going to get into the banking business, you’re going to have to have money. Right?
This one goes without saying, but it’s the most important piece you have. You have to be able to store capital in order to get into the family banking business. If you want your kids to be able to never see the inside of a bank, you’re going to have to have enough money not only for you to not go to the bank, but so that you can lend to them and they could pay you back for all these various things that’s going to take money. You have to be able to store capital in order to make this happen.
With that being said, the question is, where is the best place to store capital to build a banking business around? I think it’s almost like an oxymoron to think that the best place to build your banking business would be inside of somebody else’s banking business.
Nate Scott [04:42]:
The idea of us saving money in liquid bank accounts, like checking accounts, savings accounts and things like that, in order to offer loans to families just from a checking account chassis, a checking account reservoir, that’s like, hey, I’m still kind of in their banking business, even though it’s nice that I don’t have to borrow money, it’s nice that my kids don’t have to borrow money, but I know the bank is making a ton of money off of my money, even if I’m not borrowing from them, they’re just lending it out to other people.
So we have to store capital, and it’s important where we do it. That’s, of course, where I would be definitely biased towards the inventory banking concept that I believe it is. The. This is a firm belief, and I think it’s relatively objective, by the way. By objective, I mean, you’d be hard pressed to disagree with this based on logic and numbers and history and prophecy and every element that you possibly can.
That dividend paying, whole life insurance policies built for high cash value, just like you would find in the infinite banking concept movement, are the best place available to us to store up and use liquid money, liquid capital to build up capital and deploy capital. It doesn’t get better than that.
Nate Scott [05:51]:
You sure can you use other things. Could you use the stock market? Yeah, you could, but you never know how much money is going to be there. Could you use us treasuries? Yeah, I mean, maybe you’re making 5% like you are today. Maybe you’re making 2% like we were a year ago. I mean, I’m just merely saying that policies have been doing this. Policies, people have been using these types of policies, especially the wealthier you are, the more likely these are a part of your life. Just a little hidden secret. And that’s not a salesy thing to say, that’s just reality.
Nate Scott [06:16]:
You find more and more high cash value life insurance policies, and the wealthier and wealthier you become, because I think they understand how these things work more often than the average person does in general and amongst many other things. But what I’m trying to bring up is that you have to have a place where you’re going to store capital.
It’s got to be liquid, it should be safe, it should be growing, even if you’re not lending it out. I mean, the fact that the policy in general is in a tax free environment, all these things, you’re checking all the boxes to what you would need to kind of build your own banking business. And that’s why so many people have fallen in love with the invented banking concept, because it really is the best way for the average person to kind of build their own banking business.
That’s really what we’re all trying to do. So banks have to store capital. That means if you’re going to get into the family banking business, you’re going to have to store capital and it’s going to have to be more money than just what you need.
Nate Scott [07:03]:
And it’s going to need to live someplace and be usable from someplace. So this is why we would say, honestly, dividend paying, whole life insurance policies are the best place to do this. And I think you’d be hard pressed to find a better one.
Now, I guess you can make an argument if you wanted to. I just think we would disagree. We can agree to disagree, but nonetheless, I really do think it’s the best place for safe storage of capital that we will then one day deploy. So you have to store capital. It’s got to be bigger than just what you need.
Nate Scott [07:30]:
If you’re going to get into family banking, you have to have more and more money, which means you’re probably going to have to open, you’re going to be more committed to the idea of getting into banking. I mean, that’s fundamentally what’s going to take place here. You have to be committed to building up large amounts of capital that can be used for you, your businesses, your life, your investments, and still have money to fund things for your kids as they get older and really operate in family banking.
The second thing you’re going to have to do, as you have capital is you’re going to need some sort of loan underwriting process. Loan underwriting process. And this is what I’m going to do with the calculators I have on the screen, if you’re watching YouTube. But if not, it’s no big deal if you’re just listening, but you’re going to have to have some sort of loan underwriting process, even in a family, by the way, just because they’re your kids doesn’t mean you just lend them money. And so there’s going to have to be some sort of underwriting process.
Nate Scott [08:23]:
Like you’re in a banking business, right? You’re in the banking business, you’re going to have to have some sort of process. The honest truth is that if it’s a small loan for like a car, you have a kid who’s going to just purchase a vehicle and you’re going to lend them money. You don’t have to go through this big underwriting process. As far as if you’re borrowing money from a bank, they’re going to have you sign a loan agreement.
They’re going to have you sign a promissory note, send an amortization schedule, and they’re going to put a lien on the title of the car. If you’re going to lend money to non-family members, you would want to do something similar to what a bank would do to protect you as a lender. But inside of the family for small things like car don’t car loans, you can take it easy. I don’t think you have to go out and put a lien on the title of the car for your kid’s Toyota Corolla while he’s going to high school.
Nate Scott [09:17]:
So I think we’d all agree with this. But the bigger ticket items, the family business does need to protect itself. So those would be things like if you’re going to go lend to. So by the way, just for those simple things before I move on, like the car loans, I do think really the main thing you want is just to make sure that there is kind of an amortization schedule that you both agree to.
So, it’s like if I’m going to lend him $20,000 to buy a used Toyota Corolla for his first car, and he’s going to pay me back, not the bank, that’s great. We’re not going to have to go through any sort of lending process. But of course there’s going to be a payment with an interest rate. So you just have to agree to that.
Nate Scott [09:49]:
You don’t have to have everybody sign promissory notes. You would only really want to sign a typical banking loan agreement or promissory note if you would end up taking the person to court. They decided not to repay you. Like, in other words, it’s a protection to you to be able to show the court. Yeah, we all signed this promissory note that he has not paid me back. According to this agreement. But I don’t think you’re going to take your own kids to court. If you do, don’t lend money to them.
Nate Scott [10:18]:
If that’s possibly down the line. I wouldn’t lend money to them, let’s just put it that way in the family banking business. But if it’s an outside lender, if it’s somebody that’s not in your family, yeah, you would want to go through those types of steps to protect yourself. So I would just say kind of take it easy on the simple smaller and smaller loans. Like maybe you’re helping your kids pay off some credit card debt or paying off some student debt.
You don’t need any fancy agreements that you would maybe need from outside sources. But if you’re going to do things like mortgages, I really do think inside the family business, if you’re going to go big on like a mortgage, you really would want to file a lien on the house. Not necessarily because you would foreclose on your own kids, but just for asset protection.
Nate Scott [10:55]:
You don’t want there to be a free and clear house, at least in the eyes of lawsuits that your kids live in and someone tries to take their house for whatever reason. This would especially be the case if you’re going to buy some investment property and you’re going to do so without a third party bank, you’re going to be the lender for the deal.
You would want to file a lien on the title of the real estate just to protect yourself and your kids from anyone trying to attack and get money from you. Then you don’t have the asset anymore. There is a typical loan underwriting process for family members i that it’s much simpler.
Part of the win-win scenario, which I’m going to go into number three, is that it’s a little bit simpler than having to go through a bank. You don’t have to go through this big underwriting process of approval denial. You can actually walk to the closing table to buy a house.
Nate Scott [11:43]:
Like your kids could go walk in as a cash buyer, not as a financed buyer. So, I mean, there’s going to be some win-win scenarios for them to do business with the family bank as opposed to going out and doing business with other people’s banks. However, with all that being said, yes, at the back end, you would want to do some things as well.
On top of this, if you have kids that are not financially ready to take on debt and you’re feeling a bit nervous about lending to them, of course you would want to protect yourself more and more, but I would probably just bypass. I wouldn’t deal with it in my own life. Let me put it this way too. The reason I have some calculators up is because I wanted to share a story of what I intend to do as time goes on. So I’ve got four boys right now.
Nate Scott [12:23]:
The oldest is eight. The newest is brand new. He’s like four months old. And I would love to have the ability, of course, for their first car to use our banking system. I think it’s just going to be fun. Am I going to charge crazy amounts of interest and make a huge return? No, but I think it’s going to be awesome to be able to say, hey you guys, boys, as you grow up, you can use the family bank for every car until your banking, your own individual banking system is big enough. But for right now, you’ll of course use dad’s policies for your first house. Be able to use my policies to be able to fund it.
Nate Scott [12:54]:
I would love to be able to do this to where, hey, they don’t have to do business with dad. No hard feelings. But in reality, it’d be awesome and fun and exciting. It’d be a fulfilling way to use my money to keep my kids away from working for the bank, essentially.
Nate Scott [13:39]:
But with that being said, if I have four kids and I don’t know, like in the next 20 years or so when they’re all going to be house buying age buying their first houses, some would have been a bit sooner than 20 years, some would be right around 20 years. I’m just guessing here. Let’s say it’s in the midwest. Like a starter home. Today might be like $300,000 here in the Kansas city area. Some of you guys listening on the coast are like, what, $100,000? You can buy a one bedroom shack in the ghetto. And I understand this in the midwest.
Nate Scott [14:10]:
I was just going to say that maybe there’s going to be five, like in 20 years. I’m guessing that a house, a starter home, might be $500,000, let’s just say. And I would love to be able to finance totally without the bank, four mortgages for my kids, my boys, as I get older, which does mean who can do simple math, that that’s going to be $2 million if I do this, by times four, it’s $2 million is what I’m going to need above and beyond what I need for myself.
So, some of you guys, that’s ridiculous. Some of you are like, I mean, everyone’s in their own stage of life, wherever you’re at, and I’ve got 20 years to build it. So, I’ve got 20 years to build it up and get to that point where I’ve got enough for my own needs and my own investments and all these sorts of things. And I’ve also got excess to be able to get into the family bank.
Nate Scott [15:00]:
I wanted to show you the numbers of what would happen if I decided to do this. So if I had built up $2 million, of course I’m going to have to have capital to do that, right? I’m going to go back to point number one. I got to have capital of $2 million. But where do you guys think I’m going to put that? Well, of course, I’m in the infinite banking business. Of course it’s going to be inside of my policies. And so if I made a loan to them of $2 million, I’ve got a payment calculator pulled up, and I loan $2 million.
Nate Scott [15:26]:
That was $2 million. And I’m going to lend them, let’s just say it’s at 7% interest, which is about what mortgages are today. I don’t know what they’re probably getting cheaper back then, but either way, I think we can create, and I’m going to go talking point number three, by the way. It’s going to be a little hint. It’s going to be about seeking out win win scenarios as a family and seeking out win win scenarios as a banker in general.
So, we’ll talk about how to create win-win scenarios, but I’m going to charge, let’s say, 7% on a 30 year mortgage. And so if I was able to fund $2 million in these four homes, which, by the way, in 20 years, I’m saying a $500,000 starter home price. I know that’s not what it is today in Kansas, but that’s what I think it probably will be over time, which is due to inflation, could be even bigger.
Nate Scott [16:09]:
But it’s a good number to start with. That means that I’m going to receive a monthly payment of $13,306.05 over that period of time for 30 years. So $13,000 a month, that’s not bad, by the way, just being in the family banking, in 20 years, I’ll be in my 50s, which really means I might be able to get $13,306 a month until the day that I die, just from my kids mortgages. So not a bad little income stream, at least all the way until my 80s.
But what’s going to happen? Remember, the $2 million that was put into, or that I lent to them came from policies. So if I was able to put that same 13,306.05 payment that I’m receiving from them into my policies and have it earn interest, which it normally earns, 4%, as things are right today, it might even be higher if interest rates stay higher. It will be higher than that if interest rate to stay higher. But for right now, based on the low interest rate environment we’ve been in for so long, usually policies grow by 4% to 5%.
Nate Scott [17:11]:
So I’m just going to use four and a half and kind of cut it in the middle for 360 months. That $2 million that I lent to them produced a $13,306 payment stream on those mortgages to me for 360 months. That if I just poured that money into my policies and hadn’t earned the compound interest, in which case, let’s just say four and a half percent for those 30 years, the future value of what’s going to exist in those policies is going to be more like $10,104,430.
So, I’d have turned 2 million into 10 million over that time frame by funding these mortgages and having all of the payments be stored back up into policies, it’s true that maybe I would take that money out to live on, or, I mean, there’s so many things else you could do where it wouldn’t just sit there compounding the whole time, depending on what I needed, but my goal would be that, yeah, I’m trying to build this wealth. So, think about it.
By the way, for the kids, if you took the 13,306.05, the payments they were making to me, and you just multiplied it by, let’s see, 13,306 just to keep it easy times 360 months, really means that the total payments they would make are right at 4.8 million. So they’re going to pay me $4.8 million in principal and interest, $4.8 million in principal and interest over that 30 year time frame. But it’s going to produce $10 million to the family.
Nate Scott [18:39]:
So the principal and interest is 4.8 million, but it’s going to produce $10 million to the family over that 30 year time frame. All I’m trying to bring up, by the way, is that they could look at this and be like, this is why we love family banking. It’s keeping the money in the family as far as, yeah, if it was me, who’s going to get this $10 million at the end of those 30 years, assuming dad lives into his 80s and passes away.
It’s all going to go back to the kids. So, yeah, they would have paid principal and interest back to me instead of a bank, but it’s all being stored back up in our banking system, and when we pass away, it’s going to go transfer back to them anyway. So this is how we can kind of keep the money in the family, which is super fun. So this is a goal of mine. It’s a fun goal.
Nate Scott [19:23]:
It’s a fulfilling way to use money in a lot of ways, but you have to make sure you kind of treat it with a process and go through the process, the loan underwriting process, nothing crazy. That needs to be done with family members, but you would still want to have a typical process for you and your family. The last thing I wanted to say before we close down the last one third point is to seek out win-win scenarios. Seek out win-win scenarios.
And this is good in life in general, but as a banker, this is what it’s all about, is to seek out win-win scenarios. You don’t want your family or you don’t want to be a loser and your kids the winner, and you don’t want your kids to be the loser and you the winner. You want to make sure that in every deal, in every banking deal, every investment that you make, every banking deal, if you’re getting in the banking business, like I’m talking about, everything you do as a banker, you want to make sure there’s win-win scenarios. Win win scenarios.
Nate Scott [20:17]:
So that’s what I was trying to bring up. Even with interest to the kids, you want to make sure that they understand the win for them and you want to make sure it’s a win for you. So in this idea, if we go out 20 years and let’s say we go back into a crazy low interest rate environment like we were in with quantitative easing.
When the banks are offering 30 year loans at two and a half percent, 2.75%, 3%, and you have these crazy, ridiculously low interest rates, there’s no way it would be a win win scenario for you as a banker to try to compete with a 30 year loan at two and a half percent. That’s ridiculous. You’re not in the banking business.
You don’t get to buy the Federal Reserve’s money at 1% and lend it to somebody else at two and a half. You don’t have this ability to do what real banks can do, so it’s hard sometimes to compete with them.
Nate Scott [21:03]:
So your kids may decide for you. You would just simply say, it’s not a win-win scenario for you as a banker to try to compete with the bank rates. If it’s something so low and so crazy like that, like you can’t offer your kids a two and a half percent rate, or I wouldn’t if it was me. Just not enough to gain in there.
However, your kids may very well instead choose to work with you anyway, because they know they’re going to get all the money back when you pass away to begin with. It’s going to be used to help juice the system of family inside the family anyway.
Even at higher rates, like I’m showing here, like a 7% mortgage, on top of the fact that they can come to the closing table paying cash as opposed to financing, which oftentimes means you can negotiate lower prices on the home. And there’s other things we could do as far as they may just prefer not to go through the whole mortgage process in general, just be able to walk in, pay cash.
Nate Scott [21:50]:
The whole thing can be seamless, but at the end of the day, they may say, in spite of all the benefits of using the family bank, it’s hard to pass up. Dad. A two and a half percent loan from the bank for 30 years fixed. And I would agree. I’d say, yeah, you don’t have to work with me.
If the environment makes sense for us to do business together as a family, we’re going to do it. If the banks are offering some crazy low interest rate deals, like they were for years during quantitative easing, it might make sense for the kids to go ahead and use those to begin with. That’s okay.
Nate Scott [22:21]:
It’s got to be a win-win scenario for everybody. The same thing goes that as you’re a banker, you need to understand how this works, and you need to start using this to your advantage in every area of your life as you’re trying to find new deals, you have all this capital. You’re following step number one.
Banks have to store capital. You’re storing it up in policies, and you’re lending money to your kids. You have an underwriting process for that. Maybe you also are investing money, and you have a process for that no matter what.
Seek out win-win scenarios where you can step in and provide capital in a way that makes a real difference, with real value-add scenarios that you can potentially earn more interest back because you’re creating a win-win scenario, some people are willing to pay.
Nate Scott [23:05]:
I learned this, by the way, from Ray, who is my grandfather in law and the founder of Living wealth, who passed away in March of last year, March of 2023. And he would always tell me he was charging a lot of loans for.
He had some dentists as clients who would borrow money for different equipment that they would need, chiropractors as clients that would borrow money from him to fund equipment that they needed because their banking system wasn’t big enough yet or whatever it was.
And he would charge them, technically speaking, more interest than what they could have got from a typical bank or equipment financing company. But they chose to work with him for many soft reasons. You could say, that’s what I’m trying to bring up with a win-win scenario. There were soft reasons, there weren’t hard reasons.
Nate Scott [23:57]:
It’s not like he was trying to compete and say, bar from me, I’m the cheapest interest that you can find. That wasn’t what he was trying to do. It wasn’t about being the cheapest place. It was for the soft reasons, where essentially they had to go get approved for financing and go through this loan process with everybody else that they hated doing.
Well, Ray would not require them to go through such an egregious loan process, what he called, lovingly, the financial proctology exam. And so for Ray, he wouldn’t require the proctology exam before he would lend to you. And all of that to be said, they were willing to pay him two, three, 4% higher than what they could technically get elsewhere just to do business with someone they like.
They knew, they trusted, they understood that he was in the business to make profit, and they understood that his business was not trying to compete with the lowest rates people could find, but it was ease and convenience and simplicity, and they loved to do business with him because of how simple he made it for them.
Nate Scott [24:52]:
So I’m saying, sometimes a win-win scenario is not you competing down to the try to get the lowest rate possible. Sometimes the win-win scenario is on soft benefits that you can create by having a store of capital willing to do deals with people. Money opportunity seeks out money opportunity seeks out capital.
If you have the bank, you have a liquid reservoir of capital. Don’t be surprised when opportunity comes knocking and you can create some win-win scenarios for people who do need capital and are willing to pay higher rates than just a savings account style rate. Of course, they’re willing to pay more for the convenience that you can offer for some of the soft things that you can do.
And that same thing works in the family banking world, where the soft benefits of having the family banking business and kids doing business with the family banking business, there’s some soft benefits that maybe not just show up in us offering the cheapest loans to family members, but more so all of the things that go alongside of that, like keeping the money in the family, having it build up policy values that you’re going to receive one day, the simplicity of being able to use the money and be able to pay cash for things, as opposed to bringing financing to the table, all these soft things that are going to come into play. So I hope that’s been super fun.
Nate Scott [26:07]:
I mean, honestly, family banking is an awesome business to be in. Infinite banking is kind of the workhorse behind being able to get into the family banking business. It’s what banks are already using. By the way, as I said at the very beginning, you have to store capital. Any banking system has to have a lot of capital. It happens to be that banks have a ton of capital in life insurance policies. Believe it or not. It’s called boli Boli bank owned life insurance.
Nate Scott [26:29]:
And they have a ton of it. Wealthy people have a ton of it. They’re kind of doing these things on a big scale. We can mimic it on our scale and receive similar benefits, and that’s what this is all about. So the family banking business is very rewarding.
It’s so exciting to know that my kids will likely not have to see the inside of a bank to get any money unless they choose to, because the banks are offering such low, cheap interest rates, whatever it is, and they want to use other people’s money to get something done, that’s fine if they want to do that, but they won’t have to because we’re going to build a family banking system that’s big enough to include everybody. I hope this has been helpful to you once again.
Nate Scott [27:05]:
This has been Dollars and Nonsense. If you follow the herd, you will be slaughtered. By the way, if you want to know more about infinite banking, feel free to go to our website https://livingwealth.com/ And you can go specifically to https://livingwealth.com/escapethebank. We have a free course that teaches you all you would need to know about infinite banking and whether it’s right for you at https://livingwealth.com/escapethebank. Feel free to take the course. You’re going to love it. I think it’s the best course out there on infinite banking. We’ll see you guys next week.
