Meet Mayer A Rothschild, born in 1744 in a Jewish Ghetto in Frankfurt, Germany. Rothschild went on to launch a banking dynasty that survives to this day. Forbes Magazine has called him “the Founding Father of international finance” and named him one of history’s most influential business leaders. Along with being a phenomenally successful banker, Rothschild was shrewd about protecting his heirs from the temptations and pitfalls of great wealth, something we’ve discussed in the Valuables Blog series in depth.
In this post, we’ll discuss why Rothschild’s approach was so effective and offer some takeaways for families of all wealth levels.
The Family Bank
Rothschild’s solution was the Family Bank. He developed this system to regulate his heirs’ access to the family fortune and to discourage spending family wealth for frivolous reasons. In the Family Bank, the Rothschild fortune was earmarked for education, investment, or starting a new business venture.
Family members understood that the fortune was there for their betterment, but not an open treasure box. They were encouraged to think of themselves as stewards of their family’s wealth, to respect it, and to work hard to grow and preserve it. This concept successfully taught the Rothschild family that their wealth is not a ticket to a life of ease and freedom from responsibility. Future generations were expected to make their own way in life through their hard work, even though family wealth was available to help them for certain purposes.
The Family Bank concept that Rothschild used in his own dynasty became a widely copied model for successful family governance and wealth management. Nearly two centuries after the death of its original wealth creator, the Rothschild family remains one of the most successful multi-generational families in history.
Borrowing from the Rothschilds
The Family Bank is a conceptual repository that can be established to provide ground rules for relatives seeking access to the family’s resources. Instead of providing future generations with open access to the family money for any reason they desire, the Family Bank might permit access only for approved purposes, such as buying a home, securing education, or starting a business. The Family Bank can also establish rules, such as family members not being “given” money but instead “borrowing” money from the Family Bank, and these loans are expected to be paid back.
Now, you may or may not have a lot of wealth in your family, but I believe some key takeaways from the Family Bank might help all of us:
- Very large and wealthy families might create actual accounts or trusts governed by written rules that specify the criteria for loans and the repayment terms.
- For smaller family fortunes, the Family Bank system may simply involve a set of ground rules and principles for children and grandchildren who seek access to money.
Set Up Your Family Bank
Your own Family Bank may take many forms, depending upon your family’s level of wealth and complexity. If you’re interested in learning more about how to structure your own Family Bank, the team at Concentus is here to help. We get to know your unique situation and help develop a strategy that fits your family’s values and means. Give us a call today to learn more!
About VALUABLES
Many financial advisors focus on communicating with clients to provide complex analysis of the investment markets and economies. However, we have learned that most clients are not particularly interested in this complex analysis. Most clients hire an advisor for their knowledge of the markets, not for their ability to explain that knowledge. Most want to know what time it is, not how to build a watch.
Experience has taught us that wealthy families care most about using their wealth as a means to a desirable end, which is to achieve a more satisfying, fulfilled and impactful life, and to fulfill their most important Life Values.
VALUABLES is a periodic article series focused on the concepts, systems, and habits which we have observed among families who have been successful in this quest to use their wealth as a tool to live a life of significance. The most successful families share a set of habits, systems, and insights which enable them to use their wealth as a tool to fulfill their Values and what is most important to them.
We named this article series VALUABLES, because it provides an exploration of those habits, systems, and insights. We hope it will help you to consider your assets and possessions which are most valuable to you, and how you can use your financial wealth to enhance and cultivate your true “Valuables”.
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