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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 |
