Unspoiled Little Rich Kids

Kiplinger's Personal Finance Magazine, Dec, 2000 by Janet Bodnar, Kathy Jones

TRENDS | How to maintain FAMILY VALUES when the value of the family soars.

THERE comes a time in every parent's life when a child raises the taboo subject and asks the question that makes you squirm: "Are we rich?"

Awkward though it may be, it's easier to answer than you think. This isn't a special prosecutor peering into every corner of your financial life. Young kids are just trying to get an idea of where you stand relative to other families, and you can usually satisfy their curiosity with a reply that's vague yet reassuring: "We have enough to buy the things we need and some left over to give away."

But what if, in fact, you are very, very rich? What if, like the Zukin family of Bel Air, Cal., you live with your five children in a 6,000-square-foot house on an acre of land surrounded by movie stars? What if, like the Fabers of Atlanta, you sold your personnel business for more than $20 million--and you can probably afford to buy the company that makes the doll your 7-year-old daughter has her eye on?

"There's a lot of opportunity for kids to get a very slanted view," says Helen Zukin, whose husband, Jim, is a founder of Houlahan, Lokey, Howard and Zukin, an investment-banking firm that has grown "exponentially" with the booming economy. When Zukin recently picked up her daughter from a friend's house that was "even bigger than ours," she was relieved. "I thought, `Phew, we're not the biggest house on the block.'"

Even if they're not million-dollar babies, kids in America can't escape the trappings of affluence. Last fall, parents and teenagers spent an estimated $550 per child on back-to-school shopping, according to the American Express Retail Index, a 20% increase over 1999. In 2000 teenagers are expected to spend an average of $84 per week of their own and their parents' money, reports Teenage Research Unlimited.

But with millionaires becoming almost a dime a dozen, more kids are growing up in households that are beyond affluent. The number of high-net-worth households--those worth at least $1 million, not including their primary residence--leaped from 1.8 million in 1990 to 7.2 million in 1999, according to the Spectrem Group. About 80% of those families are first-generation wealthy, having earned their money rather than inheriting it, and 45% of millionaires are younger than 55, compared with 26% in 1990. "We've set up trusts for the unborn children of 25-year-olds," says Tracy Craig, an estate-planning lawyer with Testa, Hurwitz & Thibeault, in Boston.

In its 2000 Wealth Management Survey, the Phoenix Home Life Mutual Insurance Co. found that more than half of the people with assets exceeding $5 million are concerned that their children will not inherit their work ethic--and the younger the respondents, the greater their concern. "Parents want to know if there's a certain level at which money becomes toxic," says Jon Gallo, an estate-planning lawyer in Los Angeles who, with his psychotherapist wife Eileen, counsels clients on issues involving wealth.

In fact, no matter what your income, any amount of money can be toxic if you lavish too much of it on your kids. And the rich aren't so different from the rest of us in their goals for their children: They want them to have a sense of struggle and accomplishment, an appreciation for what money can and can't buy, and eventually they want them to achieve financial independence.

In an effort to protect their children, wealthy families try to control when the kids get the money and under what circumstances (see the box). Cathy and Rob Murgas, who won $8.3 million in the Illinois lottery, set up trusts that their three daughters--ages 20, 18 and 13--can't touch until they're 35. "We looked back on our own lives and felt we were more sensible at that age," says Rob. Knowing that they'll be millionaires at age 35 hasn't changed the older girls' plans. Both are still in college; one is pursuing her plan to become a teacher, the other would like to own her own business as a hair stylist.

But relying solely on trusts and other legal remedies may simply delay the contagion. The only long-lasting treatment is to immunize kids against "affluenza," starting with small doses of financial education when they're preschoolers and boosting the dosage as they get older (see "What To Tell the Kids," Feb.).

"I'm raising my children in a more affluent environment than I grew up in, but they're not spoiled," says Valerie Jacobs, who received a substantial amount of stock from her father when his company went public and now helps run the family foundation to which her father gave the bulk of his shares. Like lots of other teenagers, her son Andrew, 17, buys his clothes at Structure, a moderately priced division of the Limited, and daughter Claire, 14, shops at the "cheesy and cheap" stores teenage girls frequent. To make some money of his own, Andrew scooped ice cream at Baskin-Robbins last summer.

Face the music

WORRIED THAT their kids will have a huge disincentive to lead productive lives, many wealthy parents simply don't talk about money. "My first realization that we were pretty well off was that my father sent us to private colleges," says Jacobs, who also runs her own business as a consultant to family foundations. "It wasn't until his company went public that I knew we were wealthy."