The typical American household is flushing away boatloads of money in interest expenses to outside financiers. If people could become disciplined and save up before making major purchases—so that they were relying on their own accumulated capital rather than what others had saved – they would be able to finally start getting ahead.
However, Nelson Nash isn’t preaching a simple “get out of debt” philosophy. Instead, he was okay with gross borrowing in order to finance major purchases, but it had to be done under special conditions such that really you weren’t borrowing on net. For various reasons, Nash argued that it makes a lot of sense to accumulate a stockpile of wealth inside one or more high—premium, dividend – paying, whole life insurance policies.
Now for the “becoming your own banker” part: Whenever a person needed to buy a new car, send a kid to college, pay for a wedding, go on a cruise, fix the furnace, etc., he wouldn’t borrow from the conventional lender, and wouldn’t ever draw down “cash” sitting in a bank CD or other type of “savings account” Rather, the person would get a policy loan from the insurance company, using his (well-funded) life insurance policy as the collateral. Then, instead of making periodic “car payments” (or whatever the big-ticket item was) to the conventional lender, the person would direct the same cash-flow to the insurance company. Nash had several numerical illustrations to show that this strategy would make a person a heck of a lot wealthier over time, compared to other ways that the average American household might run its affairs.