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The Other Facts of Life

That birds-and-bees talk you're bound to have with the kids may be easy compared to the delicate matter of wealth and how to handle it.

Jim McConnell had a dilemma: He wanted to share his wealth with his children, but he didn’t want the money to lead them astray or sap their will to succeed on their own.

He’s far from alone. Currently, about 2.7 million Americans have at least $1 million in financial assets, according to the World Wealth Report from Capgemini and Merrill Lynch. Between 2004 and 2005, the number of U.S. millionaires rose 6.8 percent. They represent about $10.2 trillion worth of financial assets, and 92 percent of them will eventually transfer most of their assets to their families, with three-quarters of that wealth expected to be given directly to their children.

In other words, over the next decade an awful lot of parents must answer the question: How should we tell our kids that we’re rich?

Approaches vary. McConnell started talking about money with his two daughters when they were young, and transferred money to them as teenagers while offering financial advice as they grew into adulthood (they are now in their 30s). “As I became more successful, it was clear that teaching the children about money — and about our values — was something we had to start early,” says the retired CEO of Instron Corp., who now lives in Bonita Springs, Florida.

Some parents keep the size of their fortunes to themselves. One entrepreneur living in Massachusetts, who asked not to be identified, has not told his children the extent of his success. “Frankly, our kids will never have to work,” says his wife. “But we don’t want them to know that.” Indeed, these suburban parents have encouraged their children to develop their own entrepreneurial ventures to earn spending money.

Most experts recommend that parents discuss money in broad terms rather than specific dollar amounts, then gradually introduce their kids to the idea that the family has money. “You don’t want to suddenly spring it on a child,” says Michael Steiner of Regent Atlantic Capital in Chatham, New Jersey. “If you’re a successful executive, your kid has kind of won the genetic lottery. Now think of all the lottery winners who have gone broke because they were unprepared for what happened next. You don’t want that to happen to your kids.”

Most successful people want their offspring to share their values, including the “hard work, discipline, [and] ambition that factored into their success,” says Judy Barber of Family Money Consultants in San Francisco. “But you walk a really fine line here, because either too much or too little information can be a problem.”

The dangers of providing too much information run the gamut from the merely embarrassing — your son brags about your bonus on the playground — to the injurious — gossip rags are littered with the foibles and failures of the overprivileged children of the rich.

Saving & Loans

One of the simplest ways to introduce the subject of fiscal responsibility is to demonstrate the power of savings to younger children by setting up a matching account for them. For every dollar of allowance a child deposits into a bank account, the parents match the deposit by an agreed-upon ratio; some parents do a 1-for-1 match, others more. Either way, children are often surprised at the rate at which their personal savings grow, and in the meantime develop good saving habits.

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