Rich Dad Poor Dad
A Froogal Stoodent Review
The second of a new series of book reviews from The Froogal Stoodent.
Years ago, I ran across quite a bit of controversy about Robert Kiyosaki and his famous book, Rich Dad Poor Dad.
So, finally, I ran across the 20th anniversary paperback edition at my local library. Now that I have enough knowledge to actually assess its merits, I’ll share my impressions and some quotes.
I’d divide this book into two parts. The first four chapters are mostly about Robert’s youth, when he and his friend Mike worked for—and learned from—Mike’s father, a businessman who owned and operated multiple businesses: “warehouses, a construction company, a chain of stores, and three restaurants.”
Right there, only a few pages into Chapter One, comes the first indication that Rich Dad wasn’t a real person. It would be a full-time job to own and oversee each of those businesses. And he was involved in owning multiple “warehouses,” in Kiyosaki’s own words? Along with a construction company, AND a chain of stores—not a single store, but a chain of nine—as well as three restaurants?!
When did the man sleep?!?!
But, for all the argument over whether Rich Dad was a real-life human being, I’m not sure that it matters. Personification is an old literary device, wherein an author invents a human as a representation of an idea, thus granting the idea the ability to speak for itself.
Whether or not he walked the island of Hawaii, Rich Dad represents capitalism. He gives a voice to the perspective of the wealthy, without turning that representative into an unsympathetic caricature who screams at his hourly employees to work harder while he puffs on a cigar with his feet propped on the desk.
In movies, rich people are almost invariably some form of Daddy Warbucks—a stock villain who only cares about money, and therefore steamrolls over the downtrodden hero.
Here, Kiyosaki shows us a father who works hard to support his family. Rich Dad is a family man in his upper-30s or early-40s, with a 9-year-old son who plays baseball.
Unlike the Daddy Warbucks characters depicted in Hollywood, Rich Dad is actually relatable. And that’s an important part of this book’s appeal.
So, the first part of the book—Chapters One through Four—is mainly about 9-year-old Robert’s interactions with Rich Dad, and how Rich Dad’s outlook contrasts with Kiyosaki’s highly-educated father, dubbed Poor Dad. I really liked Part 1, and I think it’s the best part of the book. It debunks some common myths and explains constructive ways to think about personal finance. Some of the observations are very astute, though they’re not earth-shattering to someone with a longstanding interest in the topic.
One such observation is Kiyosaki’s point that a house—specifically a primary residence, as opposed to a rental—is not an asset, but a liability. Why? Because the house itself costs money to acquire, as well as demanding ongoing costs, such as maintenance and taxes. A point I’ve made before, as have others. Essentially, Kiyosaki argues, your home is a liability because it takes money out of your pocket.
Controversial, because it contradicts conventional wisdom. But the facts support Kiyosaki’s position, and he argues it persuasively.
I read this book on two different days. The first day, I was pretty excited about it, thinking ‘This is a good book! An easy read, accessible, and clear. Maybe a bit skimpy on details, but the target audience doesn’t want a dissertation.’
Then…after getting home from work again on Day 2, I got deeper into the second part. Chapters Five through Nine were, in essence, a sales pitch. Though he included a lot of good information in Part 1, Part 2 was sorely lacking in detail.
In Part 2, Kiyosaki strays very close to the sleazy realm of motivational B.S., with hand-wavey declarations about your mind’s power to create wealth. Such declarations aren’t wrong, but there’s insufficient detail to really grasp how to do it yourself.
Kiyosaki summarized some great real estate deals he’s made, claiming in one that he made a tidy profit of $40,000 with about 5 hours’ work, and then used that profit to purchase a more expensive property, thereby legally sidestepping any tax burden on his profit.
To Kiyosaki’s credit, he does mention a couple times that he’s had some mediocre or bad deals as well. He also points out that such time-saving, money-making maneuvers are possible only because he’s put in a lot of background work to learn about money, as well as his continuing efforts to expand his education.
But, for every warning, he makes two or three proclamations about how great and interesting a business mogul’s life is!
Essentially, it amounts to a sales pitch. A sales pitch for a certain lifestyle, a sales pitch for his expensive Cashflow board game, a sales pitch for you to attend the Rich Dad seminars that are franchised out to individuals with no connection to Kiyosaki [other than the fee they pay him for use of the Rich Dad name]…
And that, perhaps, is his greatest lesson. Mix a good sales pitch with some truth, and you can launch an empire.
An empire that apparently filed for bankruptcy in 2012, and is the subject of unflattering documentaries, and gets sued by disappointed seminar attendees…
This all goes to show that a good sales pitch is necessary but not sufficient for a good business. You need to get the word out about your product or service—which the perennially bestselling book has successfully done. Rich Dad Poor Dad is a household name.
But it’s disappointingly short on actionable specifics, and at least some of Kiyosaki’s seminar attendees would say the same. A good business must, in some sense, continue to provide value to its customers. Or it has no reason to exist.
I think Kiyosaki makes a lot of great points, and I think the book would make a good introduction to personal finance for those with little knowledge of the topic—maybe an interested co-worker or a teenager.
My personal preference would be The Millionaire Next Door, or maybe The Froogal Stoodent’s post on the Millionaire Mindset :)
But then, I’m a recovering intellectual with plenty of academic training, so I like the details more than most. My scientific training has led me to demand evidence. That’s why I appreciate relatively dense investment books, such as Bogle’s Clash of the Cultures and Burton Malkiel’s Random Walk Down Wall Street. I appreciate Paul Merriman’s free e-books and JL Collins’ detailed stock series.
Rich Dad Poor Dad provides an easily accessible introduction to one of the most important topics out there. It provides a good overview of a useful money mindset, and it provides a 10,000-foot-level overview of how to assess your financial position.
Just
don’t expect it to provide any specifics.
Verdict: Personally, I wouldn’t buy it for myself. I’m glad I checked it out from the library instead of purchasing it.
But if you want to buy it as a gift for your teenager, or to inspire a co-worker who is tired of getting paid peanuts—that might not be a bad idea!
Just know your audience. The academically-inclined (like me) would probably prefer the specificity found in The Millionaire Next Door or The Richest Man in Babylon or Bogle’s Common Sense on Mutual Funds.
In fact, Random Walk Down Wall Street might just be the single best investing book you could get for someone! But not if that person lacks the fortitude to read it through.
Quotes—True or false?
“Most people…want to go to school, learn a profession, have fun at their work, and earn lots of money. One day they wake up with big money problems, and then they can’t stop working.”
True.
Consumerism traps you,
makes you dependent on paychecks to
pay the bills. Whether
you like it or not. Whether your employer treats you fairly or not.
Whether you even realize
you’re wearing those handcuffs! Hence
why consumerism is the Official American Religion®.
“More money will not solve their problems. Just look at your dad. He makes a lot of money, and he still can’t pay his bills. Most people, given more money, only get into more debt.”
Mostly true.
There’s an endless stream of stories about people who have good financial fortune, only to lose it all. Entertainers and athletes who go bankrupt, lottery winners who blow all their winnings, ordinary folks who get a big promotion but can’t handle it and wind up losing that high-paying job.
Of course, you do need a certain amount of income to make ends meet. But people would be shocked by how little is really required to live in America today.
“Savers are losers.”
False. Or, perhaps, truthy.
I get his point, and he’s not entirely wrong. Bank accounts don’t pay enough interest to keep up with inflation, so over the long run, the purchasing power of your savings is eaten away by the rising costs of everything.
To see inflation in action, compare the price of a brand-new Corvette in 1968 to the price of a brand-new Corvette today.
But savings also have a purpose—it’s there to support you in emergencies, which are guaranteed to happen at some point. It’s called an “emergency fund,” and it’s a wise thing to maintain. I’ve also heard it called your “shit-hits-the-fan fund.”
Kiyosaki is right that it’s unwise to only put your money in the bank. But he’s wrong to say that savers are losers.
Savers aren’t losers, they’re just fiscally conservative. A wise saver is on the way to becoming a savvy investor: first, building a strong foundation of cash. After that, diversify into stocks, bonds, and real estate. Maybe even other asset classes, like precious metals or cryptocurrency. But cash is the first step.
“The rich don’t work for money.”
Partially true.
How do the rich get money in the first place? Typically, they do one of two things: 1) work for it, or 2) borrow it. And how do they maintain their money? They keep an eye on things—which requires some level of work.
The rich do work for money. Then they put that money to work for them via investments, instead of spending it on consumer goods. After doing this for a while, they’re able to gain a stream of passive income that will support them with or without work.
But by that point, they usually choose to do some sort of work anyway. They may or may not get paid for it, and they often enjoy parts of that work. But they don’t usually punch a clock for 40 hours per week. They do whatever they want to do, regardless of whether it generates an income.
That’s freedom. And that’s the goal.
“Most people do not know that it’s their emotions that are doing the thinking.” and “It’s fear that keeps most people working at a job: the fear of not paying their bills, the fear of being fired, the fear of not having enough money, and the fear of starting over.”
Definitely true.
Any good investor knows that most investors are driven by two emotions: fear and greed. It stands to reason that the same is true of any given employee. Rich Dad does a good job of explaining this principle in Chapter 1.
That fear is not necessarily a bad thing, as long as you recognize what’s happening. It helps to have a goal to strive for, such as freedom from the daily grind. But, as wise people have pointed out, it’s also necessary to have another goal to fill your post-freedom days.
“It’s not how much money you make. It’s how much money you keep.” and “Money without financial intelligence is money soon gone.” and “If your pattern is to spend everything you get, most likely an increase in cash will just result in an increase in spending.”
All true.
Just see the story of MC Hammer, who reportedly made $31 million in 1991—and was bankrupt 5 years later!
If multimillionaires can go broke, how much good will an extra $5000 per year do? If you don’t have the skills to handle money well, I guarantee you can find something to spend it on, the same way MC Hammer found ways to spend his millions, and then some.
“…rich people buy luxuries last, while the poor and middle class tend to buy luxuries first.”
True.
Probably my favorite quote from this book. It also mirrors the findings in The Millionaire Next Door.
“Once a dollar goes into your asset column, it becomes your employee…it works 24 hours a day and can work for generations.”
True…in theory.
In reality, sometimes the employee is astonishingly productive. Other times, the employee cuts off his own arm for no apparent reason.
In any investment or business venture, things will sometimes go bad. Just look at the stock market—it frequently drops by a small percentage, and occasionally drops hard and fast.
In the very long run, it’s a good bet that the market will rise. But not consistently, and not without setbacks. Hence the importance of cash, and why savers are therefore not losers.
“…the rich are not taxed. It’s the middle class who pays…especially the educated upper-income middle class.” and “Every time people try to punish the rich, the rich don’t simply comply. They react.”
True.
Obvious, but it needs to be said.
“The problem with ‘secure’ investments is that they are often sanitized, that is, made so safe that the gains are less.”
Ehh…both true and false.
Kiyosaki’s overarching point here is dangerous, so to protect my readers, I have to conclude ‘false.’ Here’s why:
There’s a reason why enormous gains are so enormous. They come with a great deal of risk—risk that can’t always be controlled. Wise people like Burton Malkiel have said that risk and reward are inextricably linked. You can’t have huge gains without a significant risk of total loss.
An extreme example: you could take out a personal loan from the bank. Say, $50,000. You drive straight to the nearest casino and visit the roulette table, and plunk every penny on red.
You could double your money with that strategy. If you pick a particular number, like 29, and the wheel lands there, you could turn your $50k into $1 million or more!
It’s easy! And fast! And exciting!
But you can probably see the downside to this strategy. If you pick wrong, and lose the $50,000, now the casino has all your money. And you still have to pay the loan back to the bank—I sure hope you have a plan for that!
If not, you’ll be desperate to raise that $50k. That desperation might prompt you to do things you wouldn’t otherwise consider, like stealing money. Or selling drugs.
At a couple points in the book, Kiyosaki disparages mutual funds.
His point here is that diversification is stupid because you can’t make money as quickly.
But I say that diversification is smart, because you won’t lose money as quickly.
Since behavioral finance research clearly indicates that people hate losses more than they like gains, that downside protection is critical.
And it’s not just true because of our messy human emotions, but for clear and logical reasons. It is worse to have $0 than to have $1000. And it is worse to have $1000 than to have $2000—but it’s not the same distance between the two.
A mathematician might say that finance is asymptotic. That is, changes occur on a curve, not a straight line. A small gain at the beginning is more impactful than a large gain as you approach the asymptote.
Since I’m boring you, consider this: I’d rather take my savings account from $0 to $100 than from $100 to $500.
Why? Because money is more than just a math problem. It represents actual purchasing power. When you have enough cash to pay for things like food, rent, and the electric bill, that gives you a certain amount of freedom. Doubling your money doesn’t get you twice as much freedom.
If a millionaire loses $100,000, he might not sleep well at night. But he still has $900,000 left, so he’ll be able to eat tomorrow.
But if a poor person loses $100, that might be his entire life savings. So who’s worse off? Of course, it’s the person who lost $100, because he has nothing left.
If you lose everything, guess what? Your freedom has disappeared. All of it. That’s why people have loss aversion. It’s a logical reaction to the layout of the system.
So,
is it possible
to
make money faster by concentrating your risk? Yes.
In this, Kiyosaki is technically correct.
But he’s wrong in spirit, because concentrating your risk is an unwise move. Unless, of course, you’ve saved a bunch of money and hold it in low-risk investments like cash. But we know what Kiyosaki calls those people: “losers.”
I think these two statements [‘don’t diversify,’ and ‘savers are losers’] are what causes a lot of the controversy about this book. They’re not entirely wrong, but they are incomplete and possibly misleading.
“The rich invent money.”
False.
The wealthy create value. It is best not to confuse the two.
I think he was just trying to grab people’s attention with a bold statement here. What he actually argues is that the wealthy discover opportunities.
Still…Kiyosaki says, correctly, that money is essentially an agreement between people. Therefore, it’s impossible to just conjure it out of thin air, as the quote implies. You would therefore need a second person to help create—“invent”—that money.
And the other party will only agree to that if he or she believes that you can generate some value.
You can support this blog—at no cost to you—by buying it on Amazon here.
Or, check out my other book reviews in this series:
1. Debt: The First 5000 Years by David Graeber
2. Rich Dad Poor Dad by Robert Kiyosaki
3. The Clash of the Cultures by John C. Bogle
4. Principles (Life and Work) by Ray Dalio
5. When Genius Failed by Roger Lowenstein
6. The Practicing Stoic by Ward Farnsworth
7. Gold: The Once and Future Money by Nathan Lewis
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