Rich Dad, Poor Dad: Three Lessons

Rich Dad, Poor DadWell, it had to happen sometime. After stirring up a hornet’s nest the last time I discussed Robert Kiyosaki, it somewhat became inevitable that I would review his very well known personal finance book, Rich Dad, Poor Dad. This book has been inspirational to many people, but the book seems to have produced as many critics as champions. What’s really inside those covers? Let’s dig in.

The title Rich Dad, Poor Dad refers to the two main male influences that Robert had as a child. His own father, the figurative “poor dad,” worked at a steady job for a living, while the “rich dad” (the father of a friend) ran a multitude of businesses. Most of this book is told from the perspective of Robert learning from his “rich dad” about how to make money – and seeing how his “poor dad” made huge money mistakes.

The first two thirds of the book covers six lessons taught to Robert by his rich dad. Today and tomorrow, I’ll cover these six lessons, then on Thursday I’ll examine the remainder of the book.

Lesson 1: The Rich Don’t Work For Money

This lesson has an ambiguous title that gives two separate meanings based on how you read it – actually, based on where you put the emphasis. If you read the title as the rich don’t work for money, that’s the wrong one. The rich in fact do work, and they work quite hard. The way the title should be read is that the rich don’t work for money. They work to learn things, and the things they learn can easily be applied to make money over and over again. I agree with this sentiment entirely – good ideas are always more valuable than good labor, because you can keep mining good ideas, while good labor is spent the second you do the work.

Another part of this lesson I liked is that the “rich dad” is actually quite frugal. Although he has a lot of money in the bank, he drives a cheap car and doesn’t live in a mansion. Too many people equate rich with material things, so I enjoy it when it is shown that being rich often has very little connection to material possessions. Being rich means never having to worry about paying your bills – it doesn’t mean driving a Ferrari (well, at least not until you can pay cash for it and not break a sweat).

Without a doubt, this was my favorite part of the entire book, even with the short, out of place rant about the gold standard (actually a misnomer, because the only way the book makes any sense in terms of time is if the rich dad is actually talking about the Bretton Woods system and not the true gold standard) and how the United States was doomed if they abandoned it.

Lesson 2: Why Teach Financial Literacy?

This is the section of the book that causes a lot of controversy when discussed. In a nutshell, this chapter redefines the term asset. For most, an asset is something that has value. For example, your home is an asset because it is something you own that has value.

Well, this section of the book redefines the word. To Robert Kiyosaki, an asset is something that generates income, while a liability is anything that has costs. In other words, by this definition, your primary residence is not an asset but a liability. It may have cash value, but it doesn’t generate income. Instead, assets are forms of passive income that you control, like a rental property or intellectual property.

So what’s the overall lesson here? Basically, you become rich by accumulating assets, assets as defined by this book. This basically means that, in my case for example, my truck is not an asset but The Simple Dollar is an asset (it generates revenue on its own – I write because I enjoy it). Wealth comes from having enough assets that generate enough income so that all of your expenses are covered and there is enough left over to invest in more assets.

Lesson 3: Mind Your Own Business

The point of this chapter is that a financially healthy individual should be spending their spare time not spending their paychecks, but investing as much of it as possible in assets (as defined by this book). This is another lesson I strongly agree with: pay off your debts and start investing as soon as you can into things that can generate revenue. This lesson was short and sweet.

However, tomorrow I’m going to look at some lessons that are a bit more difficult to swallow.

Rich Dad, Poor Dad is the twenty-second of fifty-two books in The Simple Dollar’s series 52 Personal Finance Books in 52 Weeks.