Updated on 04.04.07

Rich Dad, Poor Dad: Three More Lessons

Trent Hamm

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.

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.

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  1. Ty says:

    I agree with #6. If everyone worked for themselves in this way, absolutely nothing could be done in a productive manner. Business needs organizations, and in turn needs to employ people. Supplemental income, however is another topic.

    One thing that bothers me about the book is they try to make it seem so “easy”, but it takes plenty of sacrifice and hard work to become rich.

  2. plonkee says:

    I’m also with you on number 6 trent. Not everyone is interested in working for themselves. Nor is it the only road to wealth.

  3. Mike says:

    It’s easy to understand why he talks about self-employment and Porsches: Kiyosaki is by his own admission a motivational speaker, not an investment guru.

    It also illuminates his intended audience, which is most definitely not those who would be motivated by the frugal satisfaction of owning a modest late model sedan. His book reminds me of the Amway recruiting videos, which show all the island mansions and boats the people at the top enjoy, without any hint of the work involved in getting there.

    Kiyosaki does know about what he speaks: He’s taken his intellectual property and made it into a wildly successful brand.

  4. Alex says:

    I sort of liked overall message of the book, but, as one of the readers noted, Kiyosaki tries too often to brag about how easy it is for him to make money (Trent gave a perfect example about the “$40K real estate deal made on the courthouse steps”).

  5. Lisa Knight says:

    I was introduced to this book through Amway (run, run away!), so it sounds like a motivational video, because it was meant to be one, he was brilliant in marketing this book…

    Kiyosaki managed to make a name for himself, so that #5 was possible. He may have started with real estate etc, but I’d bet that a bulk of his wealth has come from the intellectual side of the business he created.

    I’d love to make a real estate deal like that, but I agree it isn’t exactly common place, plus you have to be prepared to take a deal like that. Most people couldn’t (or wouldn’t) even try… If I thought for a minute that I’d learn HOW he did that at a seminar I’d go LOL!!!

  6. Michelle says:

    The particularly egregious thing about his point #6 is that it is contemptuous. I have a personal pet theory (which probably means it is an exaggeration) that the single greatest mental “sin” is contempt.

    Contempt allows me to trivialize the concerns of those I hold in contempt, to take advantage of them and then shrug off the blame — to shut down my empathy toward an entire group of people.

  7. rhbee says:

    I think this contempt factor could have two causes. One, at the heart of just about every sales person I’ve ever studied, is a deep well of contempt for their buyers. I don’t know why this is, maybe it’s because salesmanship seems to have its roots in P.T. Barnum’s dictum about a sucker being born every minute. And two, it could be a self loathing that is caused by the fact that they know they selling you something you don’t need and they know it. All though, RK does seem to care about his readers.

  8. Bill says:

    Critics like Reed point out that the only real estate deals with his name in public records are when he traded up his relatively modest house for a spiffy new McMansion after the book hit it big.

    Unless you can verify it (yes, RE deals are public record) don’t believe any of his claims about making money in RE.

  9. moom says:

    #5 orginally got me to think how to invent money in the stockmarket – you can by writing options contracts and selling futures.

  10. Erick Correal says:

    Kiyosaki not owning properties under his own name (as a matter of public record) does not mean he hasn’t purchased those properties. I learned that you can make purchases under your company or trust as a clever asset protection plan strategy. I am very sure he has done this.

  11. hapa says:

    I don’t agree with #6, most people do want to start their own business, but the daily job, bills, prercieved security, and the paycheck prevents them from doing so. I know for a fact that if a person is given the opportunity to start their own business they would and drop that 9-to-5 in a heart beat. Its not insulting to say people are hamsters, its the truth, and no one wants to hear the truth. Jack Welch made millions and most people don’t make that kind of money so to compare the everyday worker to Jack Welch is a bit off base. Bottom-line, the lessons of Kiyosaki are very good, what you do, how you perceive them, are all a matter of opinion.

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