Cousins, we really need to reassess Auntie Oprah's legacy. After all, The Oprah Winfrey Show introduced us to Dr. Oz and Dr. Phil and helped make The Secret famous.
Auntie Oprah also bears some of the blame for Robert Kiyosaki’s Rich Dad Poor Dad becoming a perennial best seller. Kiyosaki appeared on The Oprah Winfrey Show in 2000. His book has remained popular for the quarter century or so since.
I've been meaning to read Rich Dad Poor Dad for years thanks to its popularity. I finally decided to crack it open after it crossed my radar twice in a couple of weeks. First there was the episode of the podcast If Books Could Kill. A couple of weeks later, my personal trainer mentioned that he was consuming it in audiobook form.
So I loaded it on to my iPad to read while on vacation. In retrospect, I wish I'd skipped it. Peter and Michael were right! Rich Dad Poor Dad is very heavy on platitudes and puffery, but very light on good or practical advice.
How Kiyosaki makes his money
What I want you to understand is this: Kiyosaki earned his money by selling books and seminars to people who want to know the purported “secrets” of “the rich.” He’s not a financial planner, portfolio manager, or accountant. He's a hustler who has convinced people to give him money because they believe doing so will make them money. Don't believe me? Read the about page of the man's own website.
Like other personal finance hustlers, Kiyosaki begins with the idea that becoming rich is all about “developing the right mindset” and “managing your fear.” Buying his books, or his board game, or one of his seminars will help you develop that mindset.
Kiyosaki might have some wealth created by investing in real estate or stocks, but his business is selling motivation disguised as financial education. That's his secret to being rich.
How Kiyosaki tells you to make money
See, that's the thing: he doesn't! Kiyosaki discusses deals he may or may not have made. He uses the terms assets and liabilitiies in ways that make no sense to anyone with the barest minimum of accounting experience. He mentions tax lien certificates. He throws out phrases like make your money work for you.
What he doesn't do is explain where to get the money that you want to put to work in the first place.
I'm going to focus on Chapter 8. It's the Getting Started chapter — the chapter that should put you on the path to making millions.
Chapter 8 contains most of the useful information in the book, to the extent that the book contains any useful information. A small caveat: I read the Kindle version of the book. What can I say? I had $5 in Amazon digital credits.
Invest First in Education
In it, Kiyosaki says that you should
Invest first in education. What kind of education? Well Kiyosaki suggests you attend seminars. You know, seminars not unlike the ones he sells.
Choose Your Friends Wisely
Kiyosaki says that you should choose your friends wisely. Choose rich friends because
that is where the money is made.
According to Kiyosaki, rich people know where the next boom will happen. If you have rich friends, the thinking goes, they might give you inside information about the next opportunity. This sounds suspiciously like insider trading to me, not that Kiyosaki is encouraging you to engage in illegal activity or anything 😉.1
Pay yourself first. Pay your bills second.
Kiyosaki instructs you to pay yourself first. Now, this is a common piece of financial advice. But it's one that assumes you have enough money to contribute to savings and still meet your debt obligations.
If you haven't watched the clip above, now is a good time to do so. In it, a man in the audience asks:
You say that you can pay yourself first, pay your bills second. But if you do that, you still can't afford to buy a house? How am I going to get somebody to loan me the money to buy a house when I can't fully pay my bills?
Notice that Kiyosaki has no real answer. Not even in the longer, audio-only version of that clip. Instead he doubles down on paying yourself first, even if bill collectors are calling.
Here's where I point out that “paying your bills second” ends up costing you money. Missing debt payments means you'll incur late fees, and pay higher borrowing costs (i.e. interest rates). Try paying yourself instead of paying your electric bill. Not only will you be in the dark, but you will have to pay a reconnection fee on top of your outstanding balance in order to get your lights turned back on. Poor credit affects your job prospects, your auto insurance rates, your ability to borrow, and your ability to rent housing.
Make room for savings in your budget or spending plan, but pay your bills first and on time.
Dipping into savings versus
Some of Kiyosaki's advice is downright contradictory. For example, Kiyosaki says poor people have
a common bad habit called
dipping into savings. He writes
The rich know that savings are only used to create more money, not to pay bills. A few pages later, Kiyosaki writes
Use assets to buy luxuries. Here's the thing: savings are a form of assets, even according to Kiyosaki's weird ass usage of those words. It's a distinction without a difference.
In an attempt to illustrate this idea, Kiyosaki presents an anecdote about a friend whose teenaged son asked for a car. The kid wanted to use his savings for the down payment. Dad wondered whether he should just buy the car for his son, presumably using his own savings.
Kiyosaki, according to this dubious story, suggests Dad use his son's desire for a car to inspire his son to learn something instead. So Dad gives his son $3,000, a Wall Street Journal subscription, and some books about investing. The kid then loses $2,000 in the stock market, doesn't get a car, and doesn't end up with any income-generating or wealth-generating assets.
Supposedly his son learned something, but I ask you: Where is the lesson? What is the lesson? Rich Dad Poor Dad is rife with this sort of nonsense.
There's also the issue of where to get the money you'll need to buy those income-producing assets. If you can earn 5% on your money, you would need about $1.2 million in bonds, funds, and equities to generate a modest $60,000 annual income.2 To generate $60,000 of income from real estate, you would need to own properties that can generate $5,000 per month after loan payments, taxes, homeowners association fees (if any), maintenance, and administrative costs. My dear reader, you'd need no less than $600,000 worth of property just to generate $60,000 in revenue to cover the expenses of the property.3 Rich Dad Poor Dad never lays this out, or explains where to get your startup capital.
Conclusion: Do not bother with this book
A proper personal finance book, especially one that purports to be about real estate investing, would do more of the following.
- Help you understand cash flow, financing options, and the legal and tax advantages of different corporate structures.
- Tell you how to determine your short, medium, and long-term income and savings goals.
- Help you decide which combination of real estate, stocks, bonds, cash, mutual funds, exchange-traded funds, and tax-advantaged accounts to use or avoid in order to meet these goals.
- Help you understand asset allocation and risk.
In other words, good personal finance books are never this vague. Kiyosaki’s book is written to sell his other products to you and to promote other books and seminars from other personal finance personalities.
If your goal is to be confused, work for free, and have bad credit, you'd do well to read Rich Dad Poor Dad. It's a vacuous, new age quasi-philosophical text that tries to convince you that the reason you are
poor is because you don't have the mindset of the
But that's the grift, right? Kiyosaki doesn't want to appeal to knowledgeable people. He wants to appeal to people who think he is revealing the secrets of the rich, because they're the ones who will continue to transfer their money to his pockets.
Save yourself some time and some cash. Do not bother with this book.
Insider trading isn't inherently negative or illegal. It simply means "this person with access to information about the company's well-being has bought or sold shares." If the insider files paperwork in a timely manner, there is neither harm nor foul. But if an insider tells you to buy or sell stock based on information that isn't yet public, that is illegal. Both you and your little insider friend can be prosecuted. If you then share your tip with one of your friends, all three of you can be prosecuted. ↩