Millionaire’s Handbook: The secret of good kids

Too much money can spoil your youngsters. But there is one surefire trick to help put them on the right track.



From the May 2008 issue of the magazine.


If you’re a millionaire, this story is for you. And if you’re not? Don’t turn the page just yet. Chances are far better than you think that one day you, too, will wind up over the seven-figure mark.

More than 450,000 Canadians hold upwards of $1 million each in investible assets, according to the consulting firm Cap Gemini. The number of new millionaires is growing by the day. For many new millionaires, wealth is a shocker. Perhaps you’ve sold your home for a fortune in the red-hot real estate market of recent years, or you’ve made a rapid climb up the corporate ladder, or you’ve recently sold your family business for an unbelievable figure. Whatever the case, we hope that Millionaire’s Handbook will help you deal with some of the problems that go with sudden wealth — because, make no mistake about it, wealth does have its downside.

Spoiled kids, for instance. If there’s one issue that crops up again and again when you talk to the rich and their advisers, it’s concern over the corrosive effect of inherited money on the next generation. The Williams Group, a financial planning firm in California, studied 3,250 wealthy families and found that a shocking 70% of rich families lost their fortunes within a generation of making it big.

Paris Hilton has become the most notorious example of how inherited wealth can turn a kid into a spoiled, self-obsessed spendthrift. But the good news is that it’s possible to raise kids in the middle of affluence without ruining them.

Philip Berber’s children are proof of that. Although they could afford to keep up with the Hiltons — their entrepreneur father sold his business for nearly half a billion dollars in March 2000 — the Berber kids live remarkably normal lives in Austin, Tex. At 10, the youngest son, Jake, hates it when his father shows up at school in the Bentley. “He likes Dad to collect him in the family minivan,” says Jake’s uncle Mark Berber, a psychiatrist at Markham Stouffville Hospital near Toronto and an expert on anxiety and stress. Instead of running around with supermodels, Jake’s handsome 22-year-old brother has been happily dating the same girl since high school, and gets from A to B in a used Volvo.

Does level-headedness simply run in the Berber genes? Possibly. But financial professionals say that rich families who raise good kids tend to follow some basic guidelines.

Rule No. 1 is to level with your kids about how much they’re going to be worth. Marvi Ricker, a vice-president of philanthropic services at BMO Harris Private Banking, says, “I have clients who have not told their children that they are worth $100 million.” Such secrecy inevitably leads to problems, says Peter Andreana, a certified financial planner and partner with Continuum II in Burlington, Ont. “The kids end up with a big whack of money and they don’t know how to handle it.”

So Rule No. 2 is to prepare your kids. Even a short course in financial basics can come as a huge revelation to an 18-year-old who believes that money magically appears at the swipe of an ATM card. For $5,000 (U.S.) a head, you can send your clan to a Financial & Life Skills Retreat run by IFF Advisors, a wealth education firm in Irvine, Calif. Here in Canada, Harris Private Banking held its first Financial Fluency Program for young adults in Toronto last November. Thanks to the burgeoning ranks of millionaires, similar courses for privileged kids are cropping up across North America.

But prep courses can do only so much. If you truly want your wealth to last, the experts say it’s essential to give your kids a sense that they’re going to inherit a duty as well as a fortune. The attitude you want to instill in your kids isn’t, “What can this money do for me?” but “What is my responsibility to the family’s wealth?”

The single best way to reduce the odds of Junior blowing your hard-earned fortune is to practice charity together as a family. The Williams Group found that philanthropy was the common factor among the 30% of rich families who manage to successfully transfer wealth from parents to kids.

“By doing philanthropy together, a family learns to communicate openly,” says Ricker of BMO Harris. “Kids learn something about how to use money effectively, and that their relationship to this money is really that of steward of the family wealth — as opposed to ‘How many Guccis can I buy?’ ’’

No matter what your household income, you can reap many of the same benefits simply by talking to your kids about why it’s important to give to charity. Tell them how much money your family has to give and, once every three months, sit down together as a family and discuss how to spend that money intelligently.

Kids should have just as much voice as parents in deciding where the cash goes — the whole point, after all, is to involve your children in the process. Perhaps your 8-year-old daughter is an aspiring violinist and wants to give to the local symphony. Maybe your 12-year-old is concerned about global warming and wants to donate to an environmental charity. Done right, such discussions allow everyone to talk about issues that matter to them. The discussions also convey the message that it isn’t all about you. It is about others,” says author and personal finance guru Patricia Lovett-Reid.

If you have a million dollars or more to devote to your favorite cause, you may want to consider starting a private foundation. By doing so, you and your children can maintain complete control over your charitable giving and focus your giving on issues that matter the most to you.

Those of us who don’t have a million bucks in the petty cash drawer can achieve many of the same benefits with as little as $10,000. Both BMO Financial Group and Mackenzie Financial offer charitable funds that allow you to direct your giving to any of several community charities in the name of your very own “mini” foundation. BMO or Mackenzie invests your nest egg (which you can add to at any time). You give only the earnings to your chosen charities for as long as you like.

However you choose to kick-start your family’s philanthropic efforts, remember to include your children in every step. In order to reap the wealth-retaining rewards of giving away part of the family fortune, you’ve got to make every decision unanimously, from your initial mission statement, to where you’ll direct annual grants, to how you’ll invest the principal. Sure, there will be disagreements along the way — and that’s an important part of the learning process.

What happens if your kids greet your plan for a foundation with derision? Don’t worry. Ricker says they’ll come around. She’s seen wayward rich kids transformed by the experience of running their family’s foundation. In fact, “A lot of wealthy people say the reason they have a foundation is to keep the family together.”

Philanthropy certainly looms huge in the Berber family. Philip and his wife, Donna, founded the international aid organization A Glimmer of Hope with $100 million from the sale of his business. They’ve since visited Ethiopia with their three sons to see some of the good the organization has accomplished, including a new school and a hospital, and safe drinking water. Even 10-year-old Jake has heard the message loud and clear — and since then has started his own water-well creation project. “They don’t talk about money,” psychiatrist Mark Berber says of his brother’s family. “They only talk about philanthropy.”

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