Rich Dad Poor Dad

Two fathers, two money philosophies

Robert Kiyosaki wrote the book with Sharon Lechter. He frames it around two father figures from his childhood in Hawaii. Poor dad is his real father: highly educated, with a PhD, and head of education for the state. He works hard, values job security and believes in school, a good job and a pension. Yet he struggles with money all his life. Rich dad is the father of his best friend Mike. He never finished eighth grade, but he builds businesses and real estate and becomes one of the richest men in Hawaii.

Kiyosaki says the two men gave opposite advice. Poor dad said, "I can't afford it." Rich dad banned that phrase and asked, "How can I afford it?" The first sentence ends thinking. The second forces the mind to look for a way. Poor dad said the love of money is the root of all evil. Rich dad said the lack of money is the root of all evil. Kiyosaki decides to follow rich dad on money.

The book's core argument: schools teach people to work for money but not how money works. Without financial literacy, people with good incomes stay stuck. The book is organized as six lessons, followed by chapters on obstacles and getting started.

Lesson 1: The rich don't work for money

The lessons start before the job. At nine, Robert and Mike try to make money by melting old lead toothpaste tubes and casting nickels in plaster molds. Poor dad gently explains that this is counterfeiting, a crime. He then tells the boys that if they want to learn how to get rich, they should ask Mike's father.

The boys then ask rich dad to teach them how to make money. He hires them to dust cans in one of his convenience stores for 10 cents an hour. After a few weeks, Robert is angry and asks for a raise. Rich dad cuts the pay to nothing.

The point is a lesson about fear and desire. Rich dad says most people react to low pay by quitting or by asking for more money, and both are driven by emotion. Fear of not paying the bills sends people back to work. Desire for more things makes them spend each raise. He calls this cycle the rat race: get up, go to work, pay bills, repeat.

The boys then notice that the store throws away comic books that do not sell. They open a small comic-book library, charge other kids to read, and hire Mike's sister to run it. The business makes money while they are not there. The lesson: instead of working for money, look for opportunities to build something that makes money for you.

Lesson 2: Why teach financial literacy?

This lesson holds the book's best-known idea. Rich dad defines terms in plain words:

• An asset puts money in your pocket.
• A liability takes money out of your pocket.

Kiyosaki argues that most people confuse the two. They call their house an asset, but a house you live in costs money each month in mortgage, taxes, insurance and repairs. By rich dad's definition, it is a liability. This claim, "your house is not an asset," is one of the most debated lines in the book.

He uses simple diagrams of an income statement and a balance sheet to show three cash-flow patterns:

• The poor earn a salary and spend it all on expenses.
• The middle class earn a salary and buy liabilities, such as a bigger house, car loans and credit card debt, which they mistake for assets.
• The rich buy assets, and the income from those assets pays their expenses.

The rule that follows: the rich acquire assets, while the poor and middle class acquire liabilities they think are assets. Wealth, in Kiyosaki's terms, is measured by how many days you could survive if you stopped working.

Lessons 3 and 4: Build your assets, and learn the tax rules

In lesson 3, "Mind your own business," Kiyosaki separates your profession from your business. Your profession is how you earn a salary. Your business is your asset column. Most people spend their lives working for an employer, the government (through taxes) and the bank (through loans), but never for themselves.

His advice is to keep your day job and build your asset column on the side. He lists the kinds of assets he means:

• Businesses that do not require your presence
• Stocks and bonds
• Income-producing real estate
• Notes (money you lend)
• Royalties from intellectual property such as music or books
• Anything else that has value, produces income or rises in value and has a ready market

He urges readers to keep their expenses low, reduce liabilities and buy luxuries only after their assets pay for them.

In lesson 4, "The history of taxes and the power of corporations," Kiyosaki gives a short history of taxes. He says income tax in England and the United States began as a tax on the rich, and that ordinary people supported it because they thought it would punish the wealthy. Over time, the tax spread to the middle class. The rich, he argues, protected themselves with corporations and financial knowledge.

He contrasts two orders:

• An employee earns, pays taxes, then spends what is left.
• A business owner with a corporation earns, spends (on legitimate business costs), then pays taxes on what is left.

Kiyosaki argues that knowing tax law and corporate structures is a core part of financial intelligence. He calls this financial IQ and says it has four parts: accounting, investing, understanding markets and the law.

Lessons 5 and 6: Invent money, and work to learn

In lesson 5, "The rich invent money," Kiyosaki argues that financial intelligence lets people create opportunities others miss. He describes buying distressed or foreclosed real estate cheaply in a down market and reselling it or renting it out. The best deals, he says, are seen with the mind, not the eyes. He contrasts people who wait for security with people who learn, act and accept that some deals will fail.

In lesson 6, "Work to learn, don't work for money," he advises young people to choose jobs for what they teach, not just for the salary. After the Marine Corps, Kiyosaki took a sales job at Xerox because he was shy and wanted to learn to sell. He argues that sales and communication are the most important business skills.

He tells a story about a writer who complains that she cannot get her novels published. When he suggests a sales course, she is offended. He points out that he is known as a best-selling author, not a best-writing author. He also asks audiences whether they could make a better hamburger than McDonald's. Most say yes. Few could build a better business system. The lesson is that broad business skills matter more than narrow expertise.

Obstacles and getting started

Kiyosaki names five reasons people with financial knowledge still fail to build assets:

• Fear of losing money. Rich dad says everyone fears loss, but the rich treat losses as lessons.
• Cynicism, which he likens to Chicken Little crying that the sky is falling.
• Laziness, often hidden as being busy. He suggests a little greed, in the form of asking "what's in it for me?", to fight it.
• Bad habits, especially not paying yourself first.
• Arrogance, where ego hides ignorance.

He then lists ten steps to start. They include finding a reason greater than reality, choosing daily what to do with your money, choosing your friends carefully, mastering one investing formula before learning another, and paying yourself first. Pay yourself first means setting money aside for your asset column before you pay bills, so the pressure of bills pushes you to earn more. Other steps include paying your advisers well, recovering your original investment quickly, using assets to buy luxuries, finding heroes and teaching others what you learn.

A final chapter gives a list of practical to-dos, such as stopping what is not working, looking for new ideas, finding people who have done what you want and taking classes.

What the critics say

The book is popular and also heavily criticized. Real estate writer John T. Reed and others have questioned whether rich dad existed as described, and Kiyosaki has given mixed answers over the years. Critics say parts of the advice are vague or risky, such as heavy use of debt to buy real estate. Tax advisers note that many of the corporate tax benefits apply only to some business owners and do not fit most employees. The claim that a home is not an asset uses a personal cash-flow definition that differs from standard accounting. In 2012, a company linked to Kiyosaki, Rich Global LLC, filed for bankruptcy after a court judgment in a dispute with a business partner.

Who should read it

Read it if you have never thought about the difference between earning money and owning assets. It works best as a mindset book that motivates you to learn more about money. Pair it with a more detailed guide on investing and taxes before you act on its specific advice.