My edition: Paperback Edition – ISBN 978-1-61268-001-9. First edition 1997, this edition March 2011, Plata Publishing.
How did I get it?
I ordered it from Amazon, along with his latest „Unfair Advantage“.
Why did I read it?
A friend had recommended „Unfair Advantage“. While checking it out at Amazon, I found that Kiyosakis’s claim to fame was based on his earlier „Rich Dad, Poor Dad“, and I decided to read them on their order of publication.
The gist of it
To start with the conclusion: I did not really like this book. Or rather, I started disliking it as I progressed. And much of the reason for my dislike is in the gist of it. In my opinion, the book has one pivotal message, which is very much worthwhile considering:
Know the difference between an asset and a liability. An asset is something you own that puts money into your pockets; a liability is something you own that takes money out of your pockets. A business or royalties create income. Owning a house or a car incur expenses. Own as many assets and as few liabilities as you can.
That, in my opinion, is the message of the book. If you accept the definition of an asset as something that produces cash flow, it may be a sound message. Often, an asset is defined as something of value, but Kiyosaki negates this. For example, a house which you live in yourself is not an asset, since it does not generate cash flow.
The story hinges on Kiyosaki’s financial education, which he received in his childhood by two father figures. His real father is “poor dad”. He is very well educated and works at a well paid steady job throughout his life. He does not manage to accrue any material wealth and admits that he has not learned, and hence does not know, how to do so. Rich dad is the father of a friend. He has no higher education, but is extremely successful in running several businesses. Rich dad agrees to give his son and Kiyosaki an education which will show them how to emulate his financial success. Message: See above. However, conveying this message in anecdotal fashion works for several chapters. The rest of the book is then filled with advice that has been criticized by many readers, sometimes harshly.
The first part of the book, the one I found interesting and sometimes inspiring, consists of six lessons (presumably given by Rich Dad). There are quite a number of websites that discuss the speculations about Rich Dad’s true identity, suggesting that Kiyosaki may have invented the entire persona. As a fiction lover, that would not really bother me. So here is the summary of the six lessons:
Lesson 1: The Rich Don’t Work for Money
This is not to be misinterpreted to “The Rich Don’t Work”. They do, in fact, often work quite hard. However, they do not work by selling their time. They work to learn, trying to find solutions that can be multiplied, so that money can be made later in multiples as well. If you sell your time as labor, the road to multiplication and hence achieving wealth becomes extremely difficult, if not barred.
Another part of this chapter shows Rich dad to be quite a modest person, living frugally but enjoying the freedom that financial independence brings. He is depicted as a very down-to-earth character who teaches the two boys with patience, and often without too many words. I enjoyed this part of the book.
Lesson 2: Why Teach Financial Literacy?
In this chapter, Kiyosaki defines his understanding of the term “asset”, which differs from the common path and has therefore caused much discussion. An asset is usually defined as something of value, cf. for example the Merriam-Webster Online Dictionary, where an asset is defined as “the entire property of a person” or “an item of value owned”. Clearly, a house that one owns is part of one’s assets. According to Robert Kiyosaki, this house, if used as one’s residency, is not an asset but a liability. He defines an asset as something that generates passive income (by itself, without further labor), whereas a property that is owned but causes costs is a liability. His definition of “asset” is based on the generated cash flow. Examples of assets are real estate that generates cash flow through rent or through increases in value, or intellectual property like patents which generate royalties.
Lesson 3: Mind Your Own Business
I found this section inspiring. It triggered a healthy process of looking into my cash flow and spending habits and evaluating options of investing into assets as defined in this book. Synopsis: As soon as you can, start generating own, and preferably passive sources of income.
Lesson 4: The History of Taxes and the Power of Corporations
And here the trouble started for me. I was raised in a country with strong social systems and an excellent infrastructure. And I have lived in countries where this was not the case. I must admit I much prefer the former circumstances.
But that is a matter of personal preference. Regardless of where one prefers to live, messing with the IRA or whatever the local tax offices may be called is a risky business. And some of the advice given in this chapter appears to be out of the legal limits in any country that I know. Transferring private expenses into a corporate structure is a procedure well known to taxation offices. Recently, Switzerland, the taxation haven in Europe for many centuries, has given in to European Union pressure and agreed to share account data, making it almost impossible to hide money and income from EU member states tax offices. This has caused a number of EU citizens to report themselves for tax evasion. Without getting entangled in any moral arguments about taxation, the advice given in this chapter does not appear to be up to current times.
Lesson 5: The Rich Invent Money
Tremendous amounts of harsh criticism have been hauled at Kiyosaki for this section. Again, perhaps the stories about making tremendous real estate deals at foreclosures are simply children of their time. Especially after the burst of the real estate bubble, some of the advice appears to be absurd or at least very risky. However, if you transfer the gist of the message to today’s world and apply the thinking to create value in booming markets like internet marketing, digital products etc., then it may still carry some value. The sort of real estate deals Kiyosaki describes certainly appear to be impossible in any area I have lived in.
Lesson 6: Work to Learn – Don’t Work for Money
The dogma is carried too far in this section for my taste. People choose their careers, and for many people, entrepreneurship is simply not the right path. Not everyone has the abilities and talents to be self-employed, and not everyone who does have them chooses to employ them over working in a corporation. And I know quite a few people who have become wealthy working as employees. Generating a steady income and investing some of it towards passive income sources takes some of Kiyosaki’s lessons while remaining employed in a job that may well add to personal growth and happiness. Therefore, the tone of the chapter, referring to employees as “hamsters”, merely turned me off completely from any benefits the remainder of the book may have had.
I only read the rest of the book “diagonally”. Especially in a work of personal advice, I find that I lose interest once my trust in the advisor is seriously shaken. My recommendation would be: Read the first few chapters if you want a trigger to start you thinking on the process of creating assets. If you have children, consider the message that children ought to be taught financial literacy as early as possible and in simple lessons. But be aware that some of the lessons have not stood the test of time, and others need to undergo a transformation process to the current economic environment. Still, the part where it becomes clear that the two boys receive extremely valuable lessons that have helped them throughout their adult lives has made it worthwhile for me to read the book.
Very critical reviews: