What’s wrong with Rich Dad, Poor Dad
That title — what’s wrong with Rich Dad, Poor Dad — is a little vague. Am I making a list of what is wrong with the book? Or am I defending it through asking a rhetorical question?
Thanks to the CoronaShutdown that’s spread across the country, I’ve had a little extra time on my hands. I decided to read this book. It’s a book that carries a little bit of polarity in the financial independence, retire early community. Some people swear by it, some loathe it.
One thing is clear: this book falls into the “make more money” category. What do I mean by that? Well, while most of the advice found in the FIRE community revolves around saving money so you have some to invest, other FI personalities (Sethi Ramit is another) almost solely focus on the income side.
So, let’s dive in:
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What’s wrong with Rich Dad, Poor Dad
For those who don’t know, the book features two dads — Kiyosaki’s real dad, a college professor, and his friend’s dad, a rich entrepreneur. Kiyosaki and his friend decided they want to be rich, and they learn some hard lessons from the rich dad by working for him at one of his stores. (Spoiler alert: The lessons is you won’t get rich working for someone else.) (Also, spoiler alert: Except for all the FIRE folks who, um, did just that.)
So most FIRE folks by now are already rolling their eyes. Kiyosaki presents two extremes: Either spend everything you earn and hope the government or company will make good on its pension, or take crazy risks (some of Kiyosaki’s later business deals are crazy risky) to get extremely rich. The idea of living frugally and investing what you save in sensible index funds is lost in the middleground somewhere.
In fact, he does reference it — famously a football coach advised a young Emmitt Smith on money, saying there are two doors and the income door should be larger than the expenses door. Kiyosaki actually says this is bad advice.
Wait, what? Even from his own perspective, that’s good advice. I mean, that’s exactly what he’s advising. Obviously if you’re developing passive streams of income (more on that in the positive column) the basic idea is that more money is coming in than going out. In FIRE, we just focus on the money going out door as well, to maximize our gains.
I’ve looked into a lot of the investments Kiyosaki talks about. Most of them are highly risky. Buying high risk notes, or making speculative real estate deals on credit — these are things that will put you in debt for life. I mean, I’ve seen if myself. We’re not talking losing a few bucks, we’re talking about the kind of financial failure you will need to declare bankruptcy against.
The other wonky thing he mentions — this one makes me pull my hair out — that you should sign up for a multi-level marketing company so you can see their process.
No thanks, dude. MLMs work by exploiting people on the bottome floor, convincing them to harass their friends day and night in order to try to sell an over-priced product that people several rungs above them earn the profit from. Meanwhile, those people on the bottom rung? All their friends hate them now, because they’ve tried to turn personal relationships into business transactions. And wouldn’t you know it, people don’t like that.
And as this review in The Simple Dollar points out, buying things like Porsches and calling them “business expenses” is a good way to get audited — you might as well get a custom license plate with “HEY IRS” and park it outside their headquarters.
What does it get right?
OK, those are strong rants, and deserved, I think. But I didn’t hate everything about it. I actually think there are some great takeaways. I will list them:
Look for opportunities: Whether you are a business owner, employee, whatever, we pay to solve problems. If you see an opportunity to solve that problem that others aren’t, that’s a good business opportunity. Even something less obvious, like flipping houses, is just that — you’re solving the problem of how do I get a family to live in this home? By fixing it up from its current dilapidated state.
Passive streams of income: This is something I am always working on. My books, my blog, and my podcast all generate a little bit of money each money. As they grow, that will expand. On a bigger scale, real estate can be that (depending on whether you want to manage them yourself or pay a company).
Take advantage of tax shelters: Just do so in the ways legally prescribed. Definitely don’t declare your brand new sports car a business expense. Take advantage of 401ks and Roth IRAs, and other things that are actually legal.
Focus on buying assets over liabilities: This one is pretty much spot on with FIRE. The FI community focuses on reducing expenses (what Kiyosaki calls liabilities) while maximizing assets. FIRE folks tend to focus on real estate or index funds, not the crazy risky investments Kiyosaki talks about, but the lessons is solid.
Some hard truths about marketing: One of my favorite stories from the book. A journalist from Singapore interviews Kiyosaki and talks about her own book, which she struggles to sell. Kiyosaki advises she take some marketing classes, and the woman goes into a rage about how highly educated she is and how that’s beneath her, and that it’s not fair that he sells more than she. As someone who has published indie books, I can agree with Kiyosaki — the folks selling the most books weren’t necessarily the best authors, they were the best marketers.
Make no mistake, many were also good authors, but there were also some terrible authors who sold well, and some brilliant authors who could hardly sell a book. I also once interviewed the lead singer/guitarist of a rock band who did pretty well. He took marketing classes to help make sure he could earn a living being a musician. His band sold all kinds of merchandise, and it was the majority of his income.
In short
Overall, the internet is right to be skeptical of Kiyosaki. Though I think there are some good lessons in there, it’s mixed in with some advice that could be truly disastrous for people, and there are just too many other options to get this information without it.
Make no mistake, some of the advice in this book could make you the poor dad quite easily. Not just the dad reliant working on a 9–5 job, but one in debt for life. And it’s always a good idea to be skeptical of advice about how to get rich from people getting rich from selling said advice. It’s a cycle I see popping up in the FIRE community some too, and it’s not a good look.
Want a better financial read? Check out JL Collins The Simple Path to Wealth.
Want to read more? Check out my blog www.frugalwheels.com to learn more about good personal finance practices, how to achieve financial independence and have more time to ride bicycles.
