Rich Dad, Poor Dad: What the Rich Teach Their Kids about Money -- That the Poor and Middle Class Do Not! by Robert T. Kiyosaki, Sharon L. Lechter

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The advice that dads traditionally give is so commonplace, it seems almost clichéd: Go to school and do well. Save your money. Work hard, and financial reward will follow.

What would you say upon learning that dear ol' Dad was dead wrong?

In his explosive financial manuals, Robert T. Kiyosaki suggests that perhaps you shouldn't have taken Dad's advice, encouraging a new look at an old financial mind-set. The subtitle of Rich Dad, Poor Dad says it all: "What the Rich Teach Their Kids About Money — That the Poor and Middle Class Do Not!" Contending that the wealthy have learned to make money work for them, rather than toiling for the almighty dollar, Kiyosaki reveals the secrets to success — his way.

A millionaire himself, Kiyosaki's own experience plays a part in his controversial financial guidebooks. His real father, an educated, diligent man who became superintendent of education in Hawaii, gave his son the traditional fatherly counsel about hard work and financial gain. He died broke and bitter. Kiyosaki's "second father," his friend Mike's dad, was a high school dropout who taught Kiyosaki all that he now knows to be true about money. His "rich dad" lived up to Kiyosaki's affectionate name for him, becoming one of Hawaii's wealthiest men.

Robert Kiyosaki's philosophy — including the assertion that a high income does not a wealthy person make — forms the cornerstone of his remarkable books, and his message is clear: "Take responsibility for yourfinancesor take orders all your life. You're either a master of money or a slave to it." With Kiyosaki's guidance, explode the myth that you need to earn a high income to become rich, challenge the belief that your house is an asset, and refuse to rely on the school system to teach kids about money.

These books — which exploded onto bestseller lists back in 1997 when the authors published them under their own Tech Press imprint — will help anyone who's serious about claiming control of his or her financial future. Discover what to teach your kids about money — and they will benefit in ways you did not.

From the Publisher

Argues that a good education and secure job are not guarantees of financial success, and presents advice for accumulating wealth.

USA Today

A startling point for anyone lookng to gain control of their financial future.

Library Journal

Reissuing a self-published best seller.

Product Details

• ISBN: 0446677450
  
• ISBN-13: 9780446677455
• Format: Paperback, 272pp
• Publisher: Grand Central Publishing
• Pub. Date: January 1998
• Sales Rank: 701
• Series: Rich Dad Series

• Table of Contents
• Read an Excerpt
• Read a Sample Chapter

Table of Contents

Read an Excerpt

Chapter 5

Lesson Four-The History of Taxes and The Power of Corporations

I remember in school being told the story of Robin Hood and his Merry Men.

My schoolteacher thought it was a wonderful story of a romantic hero, a KevinCostner type, who robbed from the rich and gave to the poor. My rich dad did not see Robin Hood as a hero. He called Robin Hood a crook.

Robin Hood may be long gone, but his followers live on. How often I still hear people say, "Why don't the rich pay for it?" Or "The rich should pay more in taxes and give it to the poor."

It is this idea of Robin Hood, or taking from the rich to give to the poor that has become the single most pain for the poor and the middle class. The reasonmiddle class is so heavily taxed is because of the Robin Hood ideal. The real is that the rich are not taxed. It's the middle class who pays for the poor, the educated upper-income middle class.

Again, to understand fully how things happen, we need to look at the Cal perspective. We need to look at the history of taxes. Although my educated dad was an expert on the history of education, my rich dad fashioned himself as an expert on the history of taxes.

Rich dad explained to Mike and me that in England and America originally, there were no taxes. Occasionally there were temporary taxes levied in order to pay for wars. The king or the president would put the word out and ask everyone to "chip in." Taxes were levied in Britain for the fight against Napoleon from 1799 to 1816, and in America taxes were levied to pay for the Civil War from 1861 to 1865.

In 1874, England made income tax a permanent levy on its citizens. In 1913, an income taxbecame permanent in the United States with the adoption of the 16th Amendment to the Constitution. At one time, Americans were anti-tax. It had been the excessive tax on tea that led to the famous Tea Party in Boston Harbor, an incident that helped ignite the Revolutionary War. It took approximately 50 years in both England and the United States to sell the idea of a regular income tax.

What these historical dates fail to reveal is that both of these taxes were initially levied against only the rich. It was this point that rich dad wanted Mike and me to understand. He explained that the idea of taxes was made popular, and accepted by the majority, by telling the poor and the middle class that taxes were created only to punish the rich. This is how the masses voted for the law, and it became constitutionally legal. Although it was intended to punish the rich, in reality it wound up punishing the very people who voted for it, the poor and middle class.

"Once government got a taste of money, the appetite grew," said rich dad. "Your dad and I are exactly opposite. He's a government bureaucrat, and I am a capitalist. We get paid, and our success is measured on opposite behaviors. He gets paid to spend money and hire people. The more he spends and the more people he hires, the larger his organization becomes. In the government, the larger his organization, the more he is respected. On the other hand, within my organization, the fewer people I hire and the less money I spend, the more I am respected by my investors. That's why I don't like government people. They have different objectives from most business people. As the government grows, more and more tax dollars will be needed to support it."

My educated dad sincerely believed that government should help people. Heloved John F. Kennedy and especially the idea of the Peace Corps. He loved theidea so much that both he and my mom worked for the Peace Corps training volunteers to go to Malaysia, Thailand and the Philippines. He always strived foradditional grants and increases in his budget so he could hire more people,in his job with the Education Department and in the Peace Corps. That washis job.

From the time I was about 10 years old, I would hear from my rich dad government workers were a pack of lazy thieves, and from my poor dad I would hear how the rich were greedy crooks who should be made to pay more taxes. Both sides have valid points. It was difficult to go to work for one of the biggest capitalists in town and come home to a father who was a prominent government leader. it was not easy knowing who to believe.

Yet, when you study the history of taxes, an interesting perspective emerges. As I said, the passage of taxes was only possible because the masses believed in the Robin Hood theory of economics, which was to take from the rich and give to everyone else. The problem was that the government's appetite for money was so great that taxes soon needed to be levied on the middle class, and from there it kept "trickling down."The rich, on the other hand, saw an opportunity. They do not play by the same set of rules. As I've stated, the rich already knew about corporations, which became popular in the days of sailing ships. The rich created the corporation as a vehicle to limit their risk to the assets of each voyage. The rich put their money into a corporation to finance the voyage. The corporation would then hire a crew to sail to the New World to look for treasures. If the ship was lost, the crew lost their lives, but the loss to the rich would be limited only to the money they invested for that particular voyage. The diagram that follows shows how the corporate structure sits outside your personal income statement and balance sheet.

It is the knowledge of the power of the legal structure of the corporation that really gives the rich a vast advantage over the poor and the middle class. Having two fathers teaching me, one a socialist and the other a capitalist, I quickly began to realize that the philosophy of the capitalist made more financial sense to me. It seemed to me that the socialists ultimately penalized themselves, due to their lack of financial education. No matter what the "Take from the rich" crowd came up with, the rich always found a way to outsmart them. That is how taxes were eventually levied on the middle class. The rich outsmarted the intellectuals, solely because they understood the power of money, a subject not taught in schools.

How did the rich outsmart the intellectuals? Once the "Take from the rich" tax was passed, cash started flowing into government coffers. Initially, people were happy. Money was handed out to government workers and the rich. It went to government workers in the form of jobs and pensions. It went the rich via their factories receiving government contracts. The government became a large pool of money, but the problem was the fiscal management of that money. There really is no recirculation. In other words, the government policy, if you were a government bureaucrat, was to avoid having excess money. If you tailed to spend your allotted funding, you risked losing it in the next budget. YOU would certainly not be recognized for being efficient. Business people, on the other hand, are rewarded for having excess money and are recognized for their efficiency.

As this cycle of growing government spending continued, the demand formoney increased and the "Tax the rich" idea was now being adjusted to include lower-income levels, down to the very people who voted it in, the poor and themiddle class.

True capitalists used their financial knowledge to simply find a way to escape. They headed back to the protection of a corporation. A corporation protects the rich. But what many people who have never formed a corporation do not know is that a corporation is not really a thing. A corporation is merely a file folder with some legal documents in it, sitting in some attorney's office registered with a state government agency. It's not a big building with the name of the corporation on it. It's not a factory or a group of people. A corporation is merely a legal document that creates a legal body without a soul. The wealth of the rich was once again protected. Once again, the use of corporations became popular once the permanent income laws were passed-because the income-tax rate of the corporation was less than the individual income-tax rates. in addition, as described earlier, certain expenses could be paid with pre-tax dollars within the corporation....

Read a Sample Chapter

Chapter One

Rich Dad, Poor Dad

I had two fathers, a rich one and a poor one. One was highly educated and intelligent; he had a Ph.D. and completed four years of undergraduate work in less than two years. He then went on to Stanford University, the University of Chicago, and Northwestern University to do his advanced studies, all on full financial scholarships. The other father never finished the eighth grade.

Both men were successful in their careers, working hard all their lives. Both earned substantial incomes. Yet one struggled financially all his life. The other would become one of the richest men in Hawaii. One died leaving tens of millions of dollars to his family, charities and his church. The other left bills to be paid.

Both men were strong, charismatic and influential. Both men offered me advice, but they did not advise the same things. Both men believed strongly in education but did not recommend the same course of study.

If I had had only one dad, I would have had to accept or reject his advice. Having two dads advising me offered me the choice of contrasting points of view; one of a rich man and one of a poor man.

Instead of simply accepting or rejecting one or the other, I found myself thinking more, comparing and then choosing for myself.

The problem was, the rich man was not rich yet and the poor man not yet poor. Both were just starting out on their careers, and both were struggling with money and families. But they had very different points of view about the subject of money.

For example, one dad would say, "The love of money is the root of all evil." Theother, "The lack of money is the root of all evil."

As a young boy, having two strong fathers both influencing me was difficult. I wanted to be a good son and listen, but the two fathers did not say the same things. The contrast in their points of view, particularly where money was concerned, was so extreme that I grew curious and intrigued. I began to start thinking for long periods of time about what each was saying.

Much of my private time was spent reflecting, asking myself questions such as, "Why does he say that?" and then asking the same question of the other dad's statement. It would have been much easier to simply say, "Yeah, he's right. I agree with that." Or to simply reject the point of view by saying, "The old man doesn't know what he's talking about." Instead, having two dads whom I loved forced me to think and ultimately choose a way of thinking for myself. As a process, choosing for myself turned out to be much more valuable in the long run, rather than simply accepting or rejecting a single point of view.

One of the reasons the rich get richer, the poor get poorer, and the middle class struggles in debt is because the subject of money is taught at home, not in school. Most of us learn about money from our parents. So what can a poor parent tell their child about money? They simply say "Stay in school and study hard." The child may graduate with excellent grades but with a poor person's financial programming and mind-set. It was learned while the child was young.

Money is not taught in schools. Schools focus on scholastic and professional skills, but not on financial skills. This explains how smart bankers, doctors and accountants who earned excellent grades in school may still struggle financially all of their lives. Our staggering national debt is due in large part to highly educated politicians and government officials making financial decisions with little or no training on the subject of money.

I often look ahead to the new millennium and wonder what will happen when we have millions of people who will need financial and medical assistance. They will be dependent on their families or the government for financial support. What will happen when Medicare and Social Security run out of money? How will a nation survive if teaching children about money continues to be left to parents—most of whom will be, or already are, poor?

Because I had two influential fathers, I learned from both of them. I had to think about each dad's advice, and in doing so, I gained valuable insight into the power and effect of one's thoughts on one's life. For example, one dad had a habit of saying, "I can't afford it." The other dad forbade those words to be used. He insisted I say, "How can I afford it?" One is a statement, and the other is a question. One lets you off the hook, and the other forces you to think. My soon-to-be-rich dad would explain that by automatically saying the words "I can't afford it," your brain stops working. By asking the question "How can I afford it?" your brain is put to work. He did not mean buy everything you wanted. He was fanatical about exercising your mind, the most powerful computer in the world. "My brain gets stronger every day because I exercise it. The stronger it gets, the more money I can make." He believed that automatically saying "I can't afford it" was a sign of mental laziness.

Although both dads worked hard, I noticed that one dad had a habit of putting his brain to sleep when it came to money matters, and the other had a habit of exercising his brain. The long-term result was that one dad grew stronger financially and the other grew weaker. It is not much different from a person who goes to the gym to exercise on a regular basis versus someone who sits on the couch watching television. Proper physical exercise increases your chances for health, and proper mental exercise increases your chances for wealth. Laziness decreases both health and wealth.

My two dads had opposing attitudes in thought. One dad thought that the rich should pay more in taxes to take care of those less fortunate. The other said, "Taxes punish those who produce and reward those who don't produce."

One dad recommended, "Study hard so you can find a good company to work for." The other recommended, "Study hard so you can find a good company to buy."

One dad said, "The reason I'm not rich is because I have you kids." The other said, "The reason I must be rich is because I have you kids."

One encouraged talking about money and business at the dinner table. The other forbade the subject of money to be discussed over a meal.

One said, "When it comes to money, play it safe, don't take risks." The other said, "Learn to manage risk."

One believed, "Our home is our largest investment and our greatest asset." The other believed, "My house is a liability, and if your house is your largest investment, you're in trouble."

Both dads paid their bills on time, yet one paid his bills first while the other paid his bills last.

One dad believed in a company or the government taking care of you and your needs. He was always concerned about pay raises, retirement plans, medical benefits, sick leave, vacation days and other perks. He was impressed with two of his uncles who joined the military and earned a retirement and entitlement package for life after twenty years of active service. He loved the idea of medical benefits and PX privileges the military provided its retirees. He also loved the tenure system available through the university. The idea of job protection for life and job benefits seemed more important, at times, than the job. He would often say, "I've worked hard for the government, and I'm entitled to these benefits."

The other believed in total financial self-reliance. He spoke out against the "entitlement" mentality and how it was creating weak and financially needy people. He was emphatic about being financially competent.

One dad struggled to save a few dollars. The other simply created investments.

One dad taught me how to write an impressive resume so I could find a good job. The other taught me how to write strong business and financial plans so I could create jobs.

Being a product of two strong dads allowed me the luxury of observing the effects different thoughts have on one's life. I noticed that people really do shape their life through their thoughts.

For example, my poor dad always said, "I'll never be rich." And that prophesy became reality. My rich dad, on the other hand, always referred to himself as rich. He would say things like, "I'm a rich man, and rich people don't do this." Even when he was flat broke after a major financial setback, he continued to refer to himself as a rich man. He would cover himself by saying, "There is a difference between being poor and being broke. Broke is temporary, and poor is eternal."

My poor dad would also say, "I'm not interested in money," or "Money doesn't matter." My rich dad always said, "Money is power."

The power of our thoughts may never be measured or appreciated, but it became obvious to me as a young boy to be aware of my thoughts and how I expressed myself. I noticed that my poor dad was poor not because of the amount of money he earned, which was significant, but because of his thoughts and actions. As a young boy, having two fathers, I became acutely aware of being careful which thoughts I chose to adopt as my own. Whom should I listen to—my rich dad or my poor dad?

Although both men had tremendous respect for education and learning, they disagreed in what they thought was important to learn. One wanted me to study hard, earn a degree and get a good job to work for money. He wanted me to study to become a professional, an attorney or an accountant or to go to business school for my MBA. The other encouraged me to study to be rich, to understand how money works and to learn how to have it work for me. "I don't work for money!" were words he would repeat over and over, "Money works for me!"

At the age of 9, I decided to listen to and learn from my rich dad about money. In doing so, I chose not to listen to my poor dad, even though he was the one with all the college degrees.

A Lesson From Robert Frost

Robert Frost is my favorite poet. Although I love many of his poems, my favorite is The Road Not Taken. I use its lesson almost daily:

The Road Not Taken

Two roads diverged in a yellow wood,
And sorry I could not travel both
And be one traveler, long I stood

And looked down one as far as I could
To where it bent in the undergrowth;

Then took the other, as just as fair,
And having perhaps the better claim,
Because it was grassy and wanted wear
Though as for that the passing there
Had worn them really about the same,

And both that morning equally lay
In leaves no step had trodden black.
Oh, I kept the first for another day!
Yet knowing how way leads onto way,
I doubted if I should ever come back.

I shall be telling this with a sigh
Somewhere ages and ages hence;
Two roads diverged in a wood, and I—
I took the one less traveled by,
And that has made all the difference.

Robert Frost [1916]

And that made all the difference.

Over the years, I have often reflected upon Robert Frost's poem. Choosing not to listen to my highly educated dad's advice and attitude about money was a painful decision, but it was a decision that shaped the rest of my life.

Once I made up my mind whom to listen to, my education about money began. My rich dad taught me over a period of 30 years, until I was age 39. He stopped once he realized that I knew and fully understood what he had been trying to drum into my often thick skull.

Money is one form of power. But what is more powerful is financial education. Money comes and goes, but if you have the education about how money works, you gain power over it and can begin building wealth. The reason positive thinking alone does not work is because most people went to school and never learned how money works, so they spend their lives working for money.

Because I was only 9 years old when I started, the lessons my rich dad taught me were simple. And when it was all said and done, there were only six main lessons, repeated over 30 years. This book is about those six lessons, put as simply as possible as my rich dad put forth those lessons to me. The lessons are not meant to be answers but guideposts. Guideposts that will assist you and your children to grow wealthier no matter what happens in a world of increasing change and uncertainty.

Lesson #1 The Rich Don't Work for Money

Lesson #2 Why Teach Financial Literacy?

Lesson #3 Mind Your Own Business

Lesson #4 The History of Taxes and the Power of Corporations

Lesson #5 The Rich Invent Money

Lesson #6 Work to Learn— Don't Work for Money