Well, 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.
As I mentioned yesterday, the book continues on with three lessons I don’t agree with nearly as much as the first three.
Lesson 4: The History of Taxes and the Power of Corporations
This is the section of the book that made me start disbelieving in the overall ideas presented. First of all, after all this talk of following in the footsteps of the rather frugal “rich dad” example, Kiyosaki begins to describe a lifestyle of buying Porsches and the like. What? It doesn’t jibe at all with the earlier lessons at all.
Even worse, the chapter misrepresents several fundamental facts about taxation that I’m quite aware of, because my father held a corporation and dealt with the taxes on it. First of all, if you start claiming stuff like Porsches as part of necessary company expenses, you are going to get audited. There’s a big difference between forming a personal corporation and buying a company car for use with that corporation, but the IRS is very clear on being rational with spending just to avoid things like buying Porsches. You can justify a company jet as being needed for travel, but what necessity for business does a Porsche provide that another car does not?
Kiyosaki mentions various tax dodges in this chapter, but almost all of them aren’t tax dodges at all, but merely tax delays. With almost all of them, you either have to hold an asset until you die or you’re going to be hit with a monstrous tax bill. If you ever need to liquidate out of a need for cash, playing these games will mean that the IRS will eat you alive.
There are some advantages of keeping money in a corporate structure as an individual person, but they mostly relate to minimizing taxation on reasonable expenses related to money you earn independent of employment. It doesn’t mean that a corporation magically means you can start buying Porsches.
Lesson 5: The Rich Invent Money
Here, the disbelief continues when the author relates a tale of a ridiculously good real estate deal made on the “courthouse steps” in which Kiyosaki claims to have made $40,000 in five hours. I’ve spent some time myself seeing what kinds of deals are available from sheriff’s sales and such and the truth is that the only time you’ll find a deal like that is if every real estate business in the area is asleep at the wheel – and that’s simply not happening in this era.
That’s not to decry the overall lesson of this chapter; you can invent money. However, the easiest way to mint your own money in today’s arena is through creating your own intellectual property. With the internet, there are many ways to distribute and monetize your intellectual property: sell crafts you can make, create websites out of your own ideas, sell your music or performances.
Lesson 6: Work to Learn – Don’t Work For Money
While I agree in general with the lesson, the tone here was extremely insulting towards people who choose to be employed, referring to them as “hamsters.” Using this logic, the majority of the millionaires in the United States (as described in The Millionaire Next Door) are “hamsters.” That’s ridiculous and insulting.
Everyone should strive to learn as much as they can when they work, because it can transform your understanding of the world and perhaps build into methods of starting your own business and being self-employed. However, to look down at people who choose to be employed for a living as “hamsters” is ridiculous. Is Jack Welch a “hamster”? He was employed by General Electric for forty years.
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.