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Book Review

Rich Dad Poor Dad
by Robert Kiyosaki with Sharon Lechter
reviewed by Marco den Ouden

Originally published at About.com - Nov. 23, 2000

"I had two fathers," writes Robert Kiyosaki in his book, Rich Dad, Poor Dad. "One was highly educated and intelligent; he had a Ph.D. and completed four years of undergraduate work in less than two years. He then went on to Stanford University, the University of Chicago, and Northwestern University to do his advanced studies, all on full financial scholarships. The other father never finished eighth grade."

The highly educated Dad was his real Dad - his biological father. The uneducated Dad was actually his best friend's father. But they were so close that Robert considered him to be like a second father. Besides, it makes for a great book title!

Guess which Dad was the poor Dad and which was the rich Dad - the educated father who became a university professor and subsequently became the chief bureaucrat in charge of education for the entire State of Hawaii? Or the uneducated father who lived in a modest home as the two families were growing up and owned a corner convenience store and a few other small businesses?

The fact is that Robert's real Dad, in spite of a large salary, a fancy house, nice car, and respected position, was financially illiterate. He lost his job at age 52 and struggled to survive. He had little in the way of savings or investments to fall back on.

His best friend's Dad, on the other hand, went on to become one of the richest men in Hawaii.

What was the difference between these two men? How did they think about money and investment? What did they teach their children? And therein lies the subtitle of the book: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not!

Rich Dad Poor Dad has been out for about three years now but I only discovered it recently. I was wandering through Costco and came across it and the two sequels - Rich Dad's Cash Flow Quadrant, subtitled Rich Dad's Guide to Financial Freedom and Rich Dad's Guide to Investing, subtitled What the Rich Invest In That the Poor and Middle Class Do Not. I picked up the latter and was about a third of the way through when I realized I should read them all and in the order they were published. I've now read the first two and ready to tackle book three again.

A Revelation

Rich Dad, Poor Dad is quite simply one of the best books on finance and investing I have read. I wish it had been around and I had read it fifteen years ago. It would literally have saved me over a hundred thousand dollars in mistakes. The reason is that conventional thinking, even the thinking of bankers and financial advisors (who like Poor Dad are highly educated professionals and not usually business owners and investors), is radically different from the thinking of the wealthy.

The best lesson from Rich Dad, Poor Dad is the question of what constitutes an asset. Riddle me this, Batman - is a house an asset? A car? A boat? A timeshare? A vacation cabin?

Conventional thinking tells us that these are all assets. They have value. In calculating our net worth, we add all these items up and they contribute to the asset side of the ledger.

The rich do not think of these things as assets, but as liabilities. They cost money to own, to manage, and to operate. They decrease our cash flow.

An asset, says Kiyosaki, is property that contributes to cash flow. Assets add to your income. Liabilities add to your expenses.

And even what you think might be an asset could be a liability. In Cash Flow Quadrant Kiyosaki recalls his first investment property - a condo in Hawaii. After he bought it, he went excitedly to his Rich Dad who immediately shot the purchase down in flames. How much are your mortgage payments? How much rent will you collect? Have you made contingencies for periods when there are no renters? Did you know they're planning to push a freeway through the area which has caused an exodus of people?

When the numbers were crunched, Kiyosaki had a property that would cost him $100 a month. Not an asset. Rich dad showed him what he had to do to renegotiate the deal on favorable terms, which he did. After reworking the deal, he ended up with $80 a month on the plus side.

"How many properties could you buy where you were losing $100 a month?" Rich Dad asked. Kiyosaki realized he would have a hard time just hanging on to the one property. "And how many could you buy with an $80 a month positive cash flow?" he asked. As many as he wanted.

The Lessons

Kiyosaki brings six lessons to the book - six things that the rich teach their kids that the poor and middle class don't. They are:

  • The rich don't work for money. Huh? Come again? Yes - that's right. The rich don't work for money. Money works for them.

  • The rich are financially literate. They know how to read a balance sheet. They understand the inter-relationships between assets, liabilities, income and expenses.

  • The rich mind their own business. The poor and middle class mind other people's businesses. Other people who, of course, reap the profits.

  • The rich understand taxes and manage their affairs so as to avoid them legally.

  • The rich invent money. They know how to put together a deal that generates value and wealth where before there was only an idle piece of property or an unexpressed idea.

  • The rich work to learn, not to make money. They are constantly on the look-out for new ideas.

This point comes through brilliantly in a story about Kiyosaki's childhood. As nine year olds, he and his best friend Mike had asked Mike's Dad to teach them how to be rich. Rich Dad gave them their first paying jobs cleaning up at one of his convenience stores. He paid them a lousy dime an hour. After three weeks Kiyosaki got fed up and went to ask for a raise.

Rich Dad asked him what he had learned. "That you're cheap and exploit your workers?"

"Keep that attitude and you learn nothing," Rich Dad replied. So what should he do? Just accept the measly ten cents an hour and smile? Rich Dad told him that his anger was a good thing. It showed that he was not complacent and willing to roll over and accept what life gave him. He had a desire for something better.

The poor pay was part of the lesson Mike's Dad was trying to teach the boys. He had taught them what it was like to work for money. Now they had to learn to let money work for them. He told them that the key lay between their ears. He then told them they could go back to work only he was cutting their pay back to nothing. They could work for him for free if they still wanted to learn how to be rich.

What a thing to ask of nine year olds. Rich Dad told them again - use your heads and learn. The boys eagerness to learn had them back at the job - three hours every Saturday, for another three weeks. Rich Dad then took them for an ice cream and asked if they had learned anything yet. They hadn't. They talked and I won't tell you what they said - you'll have to read the book to find out - but the upshot was that the boys turned down a raise to $5 an hour to be contented employees and continued to work for nothing in order to learn.

They learned that fear and greed are two powerful forces and the road to success was to overcome these emotions and learn to think. Shortly they started thinking. They noticed the manager of the store tearing half of the covers off of old comic books and returning them to the delivery man when he brought new ones. The comic books themselves, intact except for a missing half cover, went into the trash. They asked if they could have them. They could if they did not sell them.

The boys collected hundreds of such comic books, set them up in a spare room in the basement and charged neighborhood kids a dime admission to come and read comics after school at their "library". The boys had learned how to be entrepreneurs. They pulled in $9.50 a week for the next three months. They hired Mike's sister. They had become employers. They were ready for the next lesson.

The book is full of marvelous little stories like that. Stories that illustrate and explain concepts in a way that a straight forward text book never can. Perhaps that is why the books are so popular.

If there is a downside to the book, it's that I felt uncomfortable with Kiyosaki referring to his real father as Poor Dad. Dissing your father somehow bothers me. But the lessons are powerful and illuminating.

My investing horizons had been confined to the idea of working at my job and investing regularly in stocks and mutual funds in my retirement fund, but I now see tremendous other possibilities. Possibilities I had heard of before and dismissed as being pie in the sky and unattainable.

If your concepts of investing are limited to retirement plans and pensions, you owe it to yourself to pick up this book!

Notwithstanding my review above, you might also want to read a contrarian view from a real estate expert who thinks Kiyosaki is just awful. Click the link below for:

John T. Reed's Kiyosaki Review


Contents copyright Marco den Ouden       All Rights reserved
Typewriter graphic courtesy Stockfreeimages.com