Are you ready to become a Rich Dad?
Welcome to the Billfold Book Club’s discussion of Robert Kiyosaki’s Rich Dad Poor Dad: What The Rich Teach Their Kids About Money That The Poor And Middle Class Do Not!
You don’t need to have read the book to chime in on the discussion. I am also going to spoil the book’s ending.
Here we go.
At its core, the financial advice given in Rich Dad Poor Dad is nearly identical to the financial advice given in Your Money or Your Life, and in who knows how many other personal finance texts:
1. Earn money.
2. Use your earned money to create sources of passive income.
3. When your passive income nets you a monthly sum greater than your living expenses, congratulations. You are now rich.
The trouble is that this whole system depends on #1. You gotta earn money to spend money on real estate, small businesses, large-scale stock investments, and anything else that is going to get you that sweet, sweet passive income.
You literally cannot become rich without capital.
I mention these two books because I read both RDPD and YMOYL during my formative years. I found myself much more strongly drawn to the “hippie next door” sentiment of Your Money or Your Life, with its examples of hardworking hotel housekeepers who saved their pennies until they could buy Treasury Bonds (at interest levels that no longer exist).
Kiyosaki, on the other hand, comes across as the jerk you don’t want to get stuck talking to at a party.
When I realized about halfway through my RDPD re-reading that both of these books, the one that I loved and the one that repelled me, were offering the exact same advice, I realized something fundamentally important. These books weren’t actually teaching financial literacy, not really. Instead, they were rewriting the American Dream.
We’re going to come back to you cannot become rich without capital in a minute. First, a quick summary of Rich Dad Poor Dad:
Chapter 1 Lesson 1: The Rich Don’t Work for Money
Arguably the most interesting chapter in the book, Kiyosaki begins his story by comparing his Poor Dad, who seems like a kind, thoughtful man, to his friend Mike’s Rich Dad, who is a gigantic tool.
The bulk of the chapter is this hilarious story about how Rich Dad gives 9-year-old Kiyosaki a taste of how awful it is to be a low-wage employee, first by hiring Kiyosaki to work at his convenience store for 10 cents an hour and then by treating Kiyosaki like garbage. When Kiyosaki complains, Rich Dad makes him an offer: Do you want to be a wage slave for the rest of your life, or do you want to be rich?
Kiyosaki chooses rich, and Rich Dad says (paraphrased) “Okay, from here on out, you and Mike are going to work for me for free. Find me again once you’ve figured out how to be rich.”
So these two 9-year-old boys work at Rich Dad’s convenience store for free until they figure out that they can take the old comic books that the convenience store can’t sell and use them to build a comic book lending library in Mike’s basement. They hire Mike’s sister to run the library, pay her 10 cents an hour, and then charge all their little friends to hang out in Mike’s basement and read last week’s comic books.
BOOM! Passive income. Also, the pull quote for the entire book:
The poor and the middle class work for money. The rich have money work for them.
At nine years old, Kiyosaki figures out how to have money work for him. He tells Rich Dad, who is summarily pleased. (Poor Dad, meanwhile, makes the kids shut the lending library down. Killjoy.)
Sadly, Rich Dad does not appear as a character in the book beyond the first chapter. Also, Rich Dad probably isn’t real. In 2003, Kiyosaki reportedly gave a SmartMoney interview in which he said “Is Harry Potter real? Why don’t you let Rich Dad be a myth, like Harry Potter?”
SO WAIT. Rich Dad isn’t real? Is Mike real? Is the comic book lending library real? Are comic books real? What about the stories that Kiyosaki tells later in the book, the ones where he becomes rich by finding houses no one else wants, buying them for “only $5,000 down,” and then selling them at a huge profit? ARE THOSE HOUSES REAL?
Is anything in this book real?
Before we discuss capital and the American Dream, let’s speed read through the rest of these chapters:
Chapter 2 Lesson 2: Why Teach Financial Literacy?
Don’t buy a house, because it is a liability that sucks away your income and prevents you from becoming rich. (Once you have capital, on the other hand, buy 10 houses. Buy 100 houses!)
This chapter actually provides some solid Basic Financial Literacy advice. It does not, however, solve the problem of where you should live while you are trying to become rich. Houses won’t work because mortgages suck away income that could go into developing a small business. So … rentals? But I thought the rent was too damn high! WHERE AM I SUPPOSED TO LIVE, ROBERT KIYOSAKI?
Chapter 3 Lesson 3: Mind Your Own Business
You cannot become rich without starting a business. Period.
Oh, but he doesn’t mean any old rinky-dink small business like, say, my freelance writing business. He means the type of business that requires serious starting capital.
It also has to be a business where other people do all the work. After all: “If I have to work there, it’s not a business. It becomes my job.”
Chapter 4 Lesson 4: The History of Taxes and the Power of Corporations
Once you are rich, there are a lot of ways that you can get out of paying taxes. One of them is starting a corporation that serves as a tax shelter.
Chapter 5 Lesson 5: The Rich Invent Money
Be the Uber, not the person who drives for Uber.
(I mean, Uber wasn’t around when Kiyosaki was writing. But this chapter is essentially about startups, and how you can invent money by identifying a need and then creating a company that fulfills that need.)
Chapter 6 Lesson 6: Work to Learn—Don’t Work for Money
Kiyosaki is “shocked” to learn how little his talented mechanic, doctor, teacher, writer and other professional friends earn. He attempts to convince us all that we could earn more if we learned one simple skill: how to sell ourselves. He reminds us that he is a “best-selling author,” not a “best-writing author.”
Chapter 7: Overcoming Obstacles
Why aren’t you rich? Could it be because there are OBSTACLES in your MIND preventing you from SEEING ALL THE OPPORTUNITIES OUT THERE?
Chapter 8: Getting Started
This chapter is mostly pablum like “there is gold everywhere” and “find a reason greater than reality.” (Um… okay.)
It also contains one piece of actionable advice: if you have to choose between investing in an asset and paying your bills, always choose the asset. To quote Kiyosaki directly: “I let the creditors and even the government scream.”
In related news, Kiyosaki’s company Rich Global LLC filed for bankruptcy protection in August 2012.
Chapter 9: Still Want More?
This chapter is about how to flip houses, if you are interested in doing that.
Okay, back to the idea that you can’t become rich without capital and the American Dream.
Arguably, the “old” American Dream, which still sounds pretty nice to me, is to have a good job and a good place to live. (And positive human relationships, which may or may not present themselves in the form of family, children, and community.)
There’s also the other American Dream of becoming rich, which is often presented as “not having to work a day in your life” even though the types of people who flip houses, start Ubers, or become “best-selling authors” work a lot.
The only real way to become rich without working is to get your hands on a passive income stream that outpaces your monthly expenses, which is also the only way to become permanently financially independent.
You need some pretty intense starting capital to do that. Where do you get that capital? Usually at a traditional high-paying job. Kiyosaki earned his starting capital by being one of the top five salespeople at Xerox.
What if you can’t reach that level of capital at your current job? I was the top salesperson at the telemarketing agency but that was never going to get me enough money to buy and flip a house. In Chapter 6, Kiyosaki even implies that his professional mechanic and doctor friends don’t earn enough capital to do what he has done.
Your Money or Your Life advocates playing it safe and saving pennies. Rich Dad Poor Dad advocates going for broke—literally. But they both leave out the part about how it just isn’t going to happen for most of us. The economic system isn’t set up for all of us to earn enough capital that we can develop our own passive income streams.
Kiyosaki would probably consider me a cynic. (In Chapter 7, cynicism is one of the obstacles that prevents people from becoming rich.) But I’m curious what you think. So I’m turning the Billfold Book Club over to you. Let’s hash out what we think about Rich Dad Poor Dad in the comments.