Rich Dad, Poor Dad by Robert T. Kiyosaki taught me that a job is only a short-term solution to a long term problem.
A job is an acronym for ‘just over broke’ according to Robert T. Kiyosaki. In Rich Dad, Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not! the author advocates for financial literacy, critical thinking, and fundamentally poses the theory that the poor and the middle class work for money while the rich have money work for them. Essentially, favors to invest in income-generating, true assets. Pay yourself first and buy more income-generating assets so you can get out of ‘the rat race’.
The first edition of this book was published in 1997. As 2024 draws to a close this seems a lifetime away. The financial independence, retire early (FIRE) movement has grown significantly since then. With this in mind, I will briefly address only two aspects of this book: (1) financial literacy and (2) ten steps the author recommends to reach financial freedom.
Kiyosaki makes a case for building financial literacy early on. He defines financial IQ as something made of knowledge of four broad areas of expertise:
- Accounting
- Investing
- Understanding Markets
- Laws
To break this down, accounting is the ability to read and understand financial statements, records and balance sheets in addition to basic knowledge of business transactions. He combines investing with understanding markets to showcase a need for understanding economic principles, market making strategies, and – in a sense – to develop a general interest in (stock) market dynamics. Lastly, he highlights the need to utilize available business vehicles such as the proper form of incorporation and knowledge of tax avoidance (not evasion – big difference!) strategies. To illustrate this last point, he provides the example of a poor decision maker investing into liabilities, i.e. things that continue to cost money (think mortgage and property tax for a house) versus a rich decision maker moving all their assets into a corporate vehicle to shift the tax burden towards the corporate entity and take advantage of tax breaks these organizations often enjoy in America. Financial literacy is of utmost importance and while we can debate the areas of expertise, Kiyosaki certainly raises enough awareness to get started learning either of those areas.
The concluding chapters of his book focus on the ten steps to reach financial freedom. Here are the steps:
- Find a reason greater than reality
- Making daily choices
- Choose friends carefully
- Master a formula and then learn a new one
- Pay yourself first
- Pay your brokers well
- Be a giver
- Use assets to buy luxuries
- Have heroes
- Teach and you shall receive
As one can tell from their name, the steps are over-simplifying and vague. This section was the least interesting to read for his narrative jumps from story to story without conveying much. Perhaps the most controversial or misunderstood section is ‘pay yourself first’. It seems he’s building an argument for always paying yourself first ignoring debtors or other financial responsibilities. Hypothetically, someone could read this as subtracting ‘your salary’ before you pay anyone else. However, he concludes this section by stating he would never get into consumer debt and when he pays himself he’d readily invest into true assets who in turn generate the income to pay off liabilities. It’s a confusing and contradicting section. It fails to outline steps someone can take who does have consumer or student debt or who still is in the early stages of their entrepreneurial journey.
In conclusion, I still wish I had read this book earlier in my life. I heard about it here and there. I was aware of some of his principles, but it seems different to read this book knowing what I know now versus having read it when I was 15 years old. That being said, the book certainly has aged and some principles seem a little dated through today’s lens. Kiyosaki also leans strong into the narrative of ‘being poor is a choice’ completely ignoring financial inequalities that burden some and financial privileges enjoyed by others. Nevertheless, I still find this book an easy yet insightful read with principles that inspire and encourage to learn more about finance. Any form of financial education is welcome and much needed in today’s society.
