I recently reread Robert Kiyosaki’s Rich Dad, Poor Dad book. I read the book when it first came out in 2000, and I was still somewhat of a budding entrepreneur. I figured I would re-read the book now I have more experience under my belt. I also wanted to see if it’s held up to the test of time, and do I like it as much when I first read the book. A lot has happened financially in the past ten years, and I’m curious if some of his predictions came true.
“Rich Dad, Poor Dad”, should be viewed as a general starting point, rather than a list of specific items to do as an entrepreneur. Robert Kiyosaki emphasizes on six key points through out the book. It’s the differentiator between his “poor” dad (his real dad), and the “rich” dad that helped him understand business and become wealthy.
- The rich don’t work for money
- The importance of financial literacy
- Minding your own business
- Taxes and corporations
- The rich invent money
- The need to work to learn and not to work for money
The Good
Flawed Educational System
As Robert mentions many times in the book, our traditional educational system is flawed. Our education system is designed primarily to create employees, and could be a negative influence for an entrepreneur. As Kiyosaki mentions, he’s not suggesting don’t go for higher education, he’s suggesting higher education does not assist with “street smarts”. Financial literacy is something that is rarely discussed in school, and if it is discussed only at basic levels. Based upon my personal background, I’ve made this a personal focus, and will make sure my children are well educated in this subject.
The cost of education continues to increase much faster than the rate of inflation. It’s becoming more clear our education system is broken. Robert’s statements about this topic are accurate.
Being An Entrepreneur Is Less Risky
It’s typically stated: owning a business is more risky, than working for someone else. In my opinion, owning a business gives you all sorts of self-reliance skills you will not get when working for someone else. If anything with today’s “cradle to grave” mentality, we are creating more dependent individuals.
Owning a business has given me much more independence, and invaluable skills I could still use if I were to work for someone else. Things I used to consider risky, or could never imagine doing before owning a business, I now do on a weekly basis.
Your Primary Residence Is NOT An Asset
Over the years it was generally accepted that your primary residence was an asset. Robert flat out states (and I believe correctly), your home is not an asset, since it does not generate positive cash flow. The housing bubble and collapse proved this correct.
“Rich people acquire assets. The poor and middle class acquire liabilities, but they think they are assets”
While rental properties have also gone down in value, if you focused on positive cash flow, you still are bringing in money every month. Robert even states in his book, home values do not always go up.
Pretty much all consumable goods are liabilities, and something even I got tripped up with. He states you should buy investments that generate cash flow to help pay for your “doodads”. I think this is a great way to look at how to purchase your toys.
What is an Asset or Liability?
“An asset is something that puts money in my pocket. A liability is something that takes money out of my pocket.”
A load of naysayers of Robert’s books point out this statement doesn’t follow general accounting standards. This is true, and Robert acknowledges this. The point, which many miss, you should be focusing on cash flow to get wealthy.
“Wealth is a person’s ability to survive so many number of days forward… or if I stopped working today, how long could I survive?”
This statement I still use today, and devoted few posts about this topic on my web site:
The Bad
There are many reports that Robert’s “Rich Dad” does not exist and was made up. This is more than likely true, but there have been many personal finance books that are works of fiction. The book “Wealthy Barber” comes to mind. The issue some people have with Robert is he makes his book work of non-fiction when it’s not, and I agree with this issue. I find it interesting on John Reed’s web site he puts down Robert’s work, but he’s also selling his own work.
Robert does somewhat downplay the role of risk in the investment suggestions. This is somewhat true, but he does suggest you fully understand your investments before diving in. Robert states investing is only risky if you don’t fully understand what you are investing in.
Summary
While I still recommend this book, especially for starting entrepreneurs, the book has some flaws. Take some of what Robert Kiyosaki says with a grain of salt. It should be read, if not for the motivation, just to get you to think differently than a salaried employee. I don’t love it, or hate and hence the reason why I give this book a 3 out of 5 stars. In my opinion, many topics he discusses hold the test of time.
If you do decide to read Robert’s books, I only recommend reading “Rich Dad, Poor Dad“, and “Rich Dad’s Cashflow Quadrant“. Most of the other books are simply a rehash of these two books. I DO NOT recommend attending any local seminars.
I will keep his book on my list of best personal finance books, for the primary reason to get you to think outside the box.
I have to agree with your assessment. The main thing I got out of the book is looking at assets as putting money in my pocket and liabilities as taking money away. That leads right into the concepts of cash flow, passive income, and financial freedom.
I think the main criticisms of Robert are as you suggest, that a lot of the story was fictional and that he’s never even been in the military (or if he was, not in the role that he suggests he was).
However, shoot the message not the messenger. I think the message is still pretty inspirational, and it has had a big impact on me.
The guy’s a liar about the nature of the book (ie. it’s pure fiction). In several places he advises readers to commit criminal acts (fraudulent contracts, insider trading etc.). He’s a complete accounting failure, not understanding even the basic terminology. His basic advice (buy real estate because it’s an “asset”) was the worst possible advice to give at the time the book came out. He’s now selling stock trading scams.
Kiyosaki’s a loser. The book is horrible. I will never see what good anyone could possibly see in him.
Hi,
You are aware his book came out in 1999/2000, way before the housing bubble. He also says to buy rental properties, not a big primary residence. That’s a big difference. Rental properties, even underwater should be still generating positive cash flow.
Fraudulent contracts – I assume his cat partner? If a contract is truly made that’s with a cat, it’s an invalid contract no question.
Insider trading – I took the excerpt from the book, since it appears you are referencing John T. Reed’s info. Let’s put it in full context as Reed does not.
How is what he’s describing illegal and in fact states NOT to do anything illegal. Reed kinda omits this part of it.
There is “inside” information that is legal to the eyes of the SEC.
There is also been discussion over the years to legalize some aspects of insider information.
The Wikipedia link discusses this in depth.
http://en.wikipedia.org/wiki/Insider_trading
Overall John T. Reed has a beef with Robert, and he obviously is trying to sell his own stuff. Basically saying Robert’s work stinks, buy my stuff instead. If the guy had nothing to sell that would help his credibility, but directly on this page he’s selling his own books…hmmm.
Regarding trading scams, can you elaborate on those details? I do know the local seminars are pure crap. Check out this news article:
http://www.cbc.ca/marketplace/2010/road_to_rich_dad/main.html
I’m only reviewing what’s in the book, and my experience as an entrepreneur – Does what’s discussed in the book apply and is it accurate? Anything else outside of the book is not relevant for the review. Meaning don’t throw out the baby with the bathwater.
I have no idea who John T. Reed is (although I’ve googled him since you mention him). But trading US equities on material inside information is illegal. There is essentially no way to do it legally. Advising people to do so is simply stupid. And while it is something the rich sometimes do, it’s not a smart thing to emulate.
Whether it OUGHT to be legal or not is a different question. Being a bond man myself, I think insider trading laws are stupid. But it is the law, and as Martha Stewart can tell you it’s a law worth following.
As to the stock seminar stuff, it’s just junk. It’s a field I have some knowledge and hard won experience in, and nothing he’s selling is going to make anyone any money. There’s just no simple push-button method for making outsized market returns with any consistency. In order to do that, you need real trading and/or analysis skills and real capital. The people being targeted by his seminars are poor – no capital. And it takes a minimum of a year’s immersion to teach trading skills. Not a weekend seminar.
W, the link I mentioned is about real estate. My question was about stock seminars. Robert is offering them? I’m not aware of any he is offering hence my question to you.
I’m a value investor so I think all technical trading systems are junk anyways. If Robert or anyone else offers one. The one who makes the money is the one selling the “system”.
Yes, he is now selling stock seminars – [rich dad stock].
For what it’s worth, there ARE technical systems that work. That said, anything worth trading is likely NOT for sale – they’re the property of private trading firms both big and small who have no intention of killing the goose laying golden eggs.
Ahh, typo: google [rich dad stock] to find them.
The performance of the Quantitative mutual fund and hedged quant funduant funds has been relatively poor over the past 3 years.