Chapter 2: Why Teach Financial Literacy
“It’s not how much money you make. It’s how much money you keep.”
“I am concerned that too many people are too focused on money and not on their greatest wealth, their education. If people are prepared to be flexible, keep an open mind and learn, they will grow richer and richer despite tough changes. If they think money will solve problems, they will have a rough ride. Intelligence solves problems and produces money. Money without financial intelligence is money soon gone.”
The point here is not that you don’t need really need money to live but that money is a by-product of something greater, intelligence and wisdom.
“I know so many people who became instant millionaires. And while I am glad some people have become richer and richer, I caution them that in the long run, it’s not how much money you make. It’s how much you keep, and for how many generations you keep it.”
“If you want to be rich, you need to be financially literate.”
These last two quotes from Chapter 2 of Rich Dad Poor Dad are very helpful. It is important to cut costs and live within one’s means for the short term. But when you have the long view (generationally) you also will do more than just cut costs in your monthly budget. You will grow your income-producing assets and limit your expense-heavy liabilities. This is the part of the lesson that I need to take action on. I am good at cutting costs and living a modest life. But I have not been good at increasing assets. Whenever, I think about increasing my income, I always jump straight to thinking about which job I should try to get that would produce more money for me than the one I have now. While there is not anything inherently wrong with that approach, it can tend to place the emphasis on the wrong place. Kiyosaki is saying here that we should work to learn while also becoming financially literate. And then buy assets that produce income.
My son is currently 15 years old and works at a reputable fast food restaurant. I found myself teaching him the poverty mindset without even realizing it. Regarding his relatively low pay he is receiving, I talked to him about it as if he should be seeking to make more money. While that is not bad, what I realized is that if I want to teach him to be rich, then I would be regularly emphasizing to him to learn as much as he can there.
“If you are going to build the Empire State Building, the first thing you need to do is dig a deep hole and pour a strong foundation. If you are going to build a home in the suburbs, all you need to do is pour a six-inch slab of concrete. Most people, in their drive to get rich, are trying to build an Empire State Building on a six-inch slab of concrete.”
“Accounting is possibly the most confusing, boring subject in the world, but if you want to be rich long-term, it could be the most important subject.”
“Rich people acquire assets. The poor and middle-class acquire liabilities that they think are assets.”
Rule #1: You must know the difference between an asset and a liability, and buy assets.”
“An asset puts money into my pocket. A liability takes money out of my pocket.”
“An asset is something that puts money in my pocket whether I work or not. A liability is something that takes money out of my pocket. If you want to be rich, simply spend your life buying or building assets.”
“Illiteracy, both in words and numbers, is the foundation of financial struggle. If people are having difficulties financially, there is something that they don’t understand, either in words or numbers. The rich are rich because they are more literate in different areas than people who struggle financially. So if you want to be rich and maintain your wealth, it’s important to be financially literate, in words as well as numbers.”
“In 80 percent of most families, the financial story paints a picture of hard work to get ahead. However, this effort is for naught because they spend their lives buying liabilities instead of assets.”
“A person can be highly educated, professionally successful, and financially illiterate.”
“All too often, instead of trusting their inner wisdom, that genius inside, most people follow the crowd. They do things because everybody else does them. They conform, rather than question. Often, they mindlessly repeat what they have been told: “Diversify.” “Your home is an asset.” “Your home is your biggest investment.” “You get a tax break for going into debt.” “Get a safe job.” “Don’t make mistakes.” “Don’t take risks.”
“Here was a man that had left school when he was 13 who was now directing instructing, ordering, and asking questions of educated people. They came at his beck and call.”
“Here was a man who had not gone along with the crowd He was a man who did his own thinking and detested the words, ‘We have to do it this way because that’s the way everyone else does it.”
“‘An intelligent person hires people who are more intelligent than he is”‘
“When I want a bigger house, I first buy the assets that will generate the cash flow to pay for the house.”
“The middle class finds itself in a constant state of financial struggle. Their primary income is through their salary. As their wages increase, so do their taxes. Their expenses tend to increase in proportion to their salary increase: hence, the phrase ‘the Rat Race.’ They treat their home as their primary asset, instead of investing in income-producing assets.”
“This pattern o f treating your home as an investment, and the philosophy that a pay raise means you can buy a larger home or spend more, is the foundation of today’s debt-ridden society. Increased spending throws families into greater debt and into more financial uncertainty, even though they may be advancing in their jobs and receiving pay raises. This is high-risk living caused by weak financial education.”
“The real tragedy is that the lack of financial education is what creates the risk faced by average middle-class people. The reason they have to play it safe is because their financial positions are tenuous at best. Their balance sheets are not balanced. Instead, they are loaded with liabilities and have no real assets that generate income. Typically, their only source of income is their paycheck. Their livelihood becomes entirely dependent on their employer. So when genuine ‘deals of a lifetime’ come along, these people can’t take advantage of them because they are working so hard, are taxed to the max, and are loaded with debt.”
~Robert Kiyosaki, Rich Dad Poor Dad
Inspired Resolve 