Book Summary: Rich Dad Poor Dad
What the Rich Teach Their Kids About Money, That the Poor and Middle Class Do Not
Author: Robert T. Kiyosaki
Book Size: 241 pages
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Moral and Introduction:
The novel tells the narrative of a man (the narrator and author) who has two fathers: his real father, who is impoverished, and the father of his boyhood best friend, Mike, who is wealthy. Both of the author’s fathers taught him how to succeed, although in very different ways. The author realized which father’s strategy made more financial sense. Throughout the book, the author contrasts both dads’ ideals, views, financial methods, and degree of dynamism, demonstrating how his real father, a poor and struggling but highly educated guy, paled in comparison to his wealthy father in terms of asset accumulation and economic acumen.
Because of one conspicuous lack of financial literacy, the author compares his impoverished father to individuals who are continually scampering in the Rat Race, helplessly locked in a vicious loop of seeking more but never being able to realize their ambitions of prosperity. They spend so much time in school learning about the world’s issues, but they never learn anything about money since it is never taught in school. His affluent father, on the other hand, represents the independently wealthy core of society who purposefully exploits businesses’ power and intimate knowledge of tax and accounting (or that of their financial advisers) to their benefit.
The premise of the book boils down to two concepts: a can-do attitude and courageous entrepreneurship. The author emphasizes these two concepts by focusing on the importance of financial literacy, how corporations’ power contributes to making the wealthy even wealthier, minding your own business, overcoming obstacles by not encouraging laziness, fear, cynicism, and other negative attitudes, and recognizing human characteristics and how their preconceived notions and upbringing obstruct their financial freedom goals.
Six important lessons are presented by the author and are discussed throughout the book:
- The wealthy do not labor for a living.
- Financial literacy is critical.
- Taking care of your affairs
- Corporations and Taxes
- The wealthy create money.
- The importance of working to learn rather than working for money
About Book
Book follows three major characters: a poor father, a wealthy father (Kiyosaki’s second father), and a son (the author himself as a narrator of the book). Each character’s essence is as follows:
- Poor Dad: Educated but uneducated in the streets
- Rich Dad: Only eighth-grade education, but plenty of street smarts
- Kiyosaki (The Son): The observer who takes away lessons from both but internalizes only the features of the wealthy father
Poor Dad
The author contrasts his impoverished father to the millions of other fathers who want their sons to achieve well in school so that they can acquire a nice job with a reputable company. Poor Dad was a traditionalist who believed in working hard, conserving money, and not purchasing things he couldn’t afford. He felt that having a decent position with a strong firm was something to strive for, thus he is disappointed when his son leaves a huge, renowned company.
Poor dad sees education as a ticket to success. He had a doctorate and had attended Ivy League institutions, yet he was constantly broke. He was certain that he would never be wealthy, and the author points out that this belief became self-fulfilling.
Poor dad was more concerned about getting a decent education than with money. “I’m not interested in money,” or “money doesn’t matter,” his impoverished father would always declare, according to the author.
Poor dad was worried about things like employment tenure and security, Social Security, vacation and sick leave, corporate insurance, and wage rises and promotions, according to the author. The author had the impression that his impoverished father was more concerned with these problems than with the work itself. The author refers to this as being “caught in the Rat Race.” His impoverished father toiled away tirelessly, yet he never prospered monetarily.
Poor dad’s attitude to money was to work hard to have enough money to pay the bills (as opposed to affluent dad’s method of making money work for him).
Rich Dad
The author said that he realized his affluent father made a lot more sense than his impoverished father when he was nine years old. The author learned not to declare, “I can’t afford that,” but rather to question, “How can I afford it?” from a wealthy father.
He illustrates this notion by recounting an instance in which he and his best buddy Mike were hired by Mike’s father. Rich dad offered them pitiful pay on purpose to incite rage and a sense of unfairness in them, leading them to learn that the only way to go ahead is to work for themselves, not for others. For example, when the author complains to the wealthy dad about how he can’t afford to purchase anything with his income, the rich dad advises him to ask “how can I make more money” instead of dwelling on the fact that his wages are low because this stimulates the brain to take action. When someone replies, “I can’t afford it,” his wealthy father claims that his brain shuts down. As a result, it discourages initiative and encourages apathy.
While his poor father put time and effort into school, he had little experience with investment, according to the author. His wealthy father, on the other hand, was an expert in the financial game since it was all he did. The statement “the absence of money is the source of all evil” reflected his wealthy father’s attitude on money (his poor dad, on the other hand, believed that the love of money is the root of all evil).
Rich dad, according to the author, also promoted the notion that taxes penalized producers while rewarding non-producers. He was the kind to bring up money at the dinner table, and the author depicted him as someone who learned to handle danger rather than avoid it.
The Son
The author of Rich Dad, Poor Dad opens his book by stating that he is lucky to have had two fathers. He absorbed great skills from both of them, but it becomes clear in Chapter One which parent was more financially savvy. He contrasts and analyses both dads’ perspectives on working hard, receiving an education, saving and investing, and seeing how the affluent and poor have quite different behaviors. He credits his financial expertise to the numerous chats he had with his wealthy father.
The author offers a straightforward approach to the subject of money, emphasizing the need for accounting knowledge so that the reader knows the difference between assets and liabilities. He draws simple graphs to depict the entrance and outflow of money, as well as how the wealthy accumulate assets and the impoverished accumulate liabilities (expenses). Because he calls accounting “the most essential topic in your life,” it’s clear that the author values accounting knowledge — no matter how dull it is.
The author efficiently conveys his thoughts by utilizing several examples and stories, exposing his pro-capitalist viewpoint.
The author also demonstrates his comprehension of the government’s and taxman’s operations, concluding that the middle class is the one who pays for the impoverished. The wealthy are the ones who pay less tax because they know how to use tax laws to their benefit.
Key Takeaways
One recurring topic in this book is that to be wealthy, one must strive to own the system or means of production rather than working for someone else. The author emphasizes that working as an employee is restrictive; it closes one’s mind to alternative options and inhibits initiative.
The most potent asset is financial intelligence. The author argues that through studying accounting and investment principles, people will be able to recognize the difference between an asset and a liability; in reality, it is a more practical application of knowing what’s right and wrong. Creating a series of costs is incorrect; nevertheless, accumulating assets is correct.
Unlike people who earn and then pay taxes on their earnings, businesses earn, spend what they want, and then pay taxes on the remainder. As a result, corporations have a certain amount of authority. The wealthy understand how to use power; the impoverished do not.
True pleasures, according to the author, are experienced when they are the outer expressions of wise asset creation and investing. He uses the example of his wife, who bought a Mercedes Benz because it was a car she wanted and worked hard to get. However, because of this human weakness, the author warns against keeping up with the Joneses and going into debt.
The majority of human inactivity may be attributed to fear, sloth, cynicism, and arrogance.
#1 Rich Dad, Poor Dad
Robert Kiyosaki and Mike’s journey begins in Hawaii in 1956 when both boys were nine years old. A counterfeit nickel manufacturing enterprise was their first get-rich plan. To make the nickels, they used plaster molds and filled the molds with melted lead toothpaste tubes. Mike’s father disrupted their plot when he notified the lads of their unlawful conduct.
Following that day, the lads spent their leisure time learning about banking and economics from Mike’s wealthy father. The boys’ first instruction from Mike’s father was to despise the “Rat Race.” He was able to do this by forcing the lads to labor for three hours at ten cents an hour at one of his grocery stores.
After a few weeks of being abused for labor, Kiyosaki wanted a raise, but his father instead reduced his income and instructed him to work for free. Both guys eventually grew weary of being underappreciated (and underpaid), and they met with Mike’s father individually. During their meetings with affluent dad, he apologized for the lack of money and gave them either the lesson’s moral or a salary hike. While the affluent dad gave them wage hikes, both boys preferred to learn the moral of the story. He began with twenty-five cents, a dollar, two dollars, and even five dollars, which would have been considered a substantial sum of money for hourly pay, but the lads stayed steadfast in their determination to understand the lesson’s morals.
The lesson is to get out of the “Rat Race” and have people work hard to put money in your pocket instead of spending your entire life working to put a little money in your pocket and a lot of money in someone else’s pocket. This was the most crucial lesson delivered to the lads out of all the others. (28–35, Kiyosaki and Lechter)
#2 The wealthy don’t work for a living.
The author advises his audience to disregard what life teaches them. “The only thing life does is push you about,” he adds.
This chapter discusses those who choose to play it safe since they were not trained to take chances at a young age. The author advances the concepts that the poor and middle classes work for money, that fear and greed generate ignorance and poverty, and that using one’s emotions rather than reasoning with emotions is important. The author also emphasizes that chances come and go in life; the wealthy identify them quickly and convert them into gold bullions.
Others miss out on these possibilities because they are too preoccupied with obtaining wealth and security. “That’s all they’re going to get,” the author adds.
#3 Why Should Financial Literacy Be Taught?
The narrative of Kiyosaki and Mike continues later in life, in 1990, and both of the now-adults have achieved remarkable strides in their financial and societal standing. Mike was able to take his father’s lessons and apply them to his own life. He took over his father’s enormous firm and expanded it in every way, and he is presently grooming his son to take over the company when he retires. Kiyosaki, for one, was able to retire with his wife Kim at the age of 47.
Charles Schwab, Samuel Insull, Howard Hopson, Ivar Kreuger, Leon Frazier, Richard Whitney, Arthur Cotton, Jesse Livermore, and Albert Fall convened at the Edgewater Beach Hotel in Chicago for a business meeting to discuss various investments and money schemes. A study published twenty-five years later said that the vast majority of the highly affluent people who gathered in Chicago ended up in jail, dead, or impoverished. The main takeaway from the outcomes of these sad businesses is that financial knowledge is required to be and remain secure. The ideology that the major 1920s entrepreneurs represented is still popular today, with some professional sportsmen making terrible financial decisions and ending up with close to nothing. This particular lesson is intended to educate individuals on how to be wise with their money before they get it, rather than after they have it. In a sense, you shouldn’t try to build a skyscraper or even a house without first laying a solid foundation. There is just one guideline, according to Kiyosaki, that may help a person develop a firm foundation: realize the difference between an asset and a liability, and make sure you only handle assets. (56, Kiyosaki and Lechter)
This chapter captures the heart of the author’s argument for financial independence when it comes to views about money purchasing freedom and the capacity to enjoy retirement without concern of outliving one’s money. “Intelligence solves issues and generates money,” he argues. “Money without financial understanding is money that is quickly depleted.”
Financial literacy, according to the author, begins with a basic understanding of accounting. It’s critical to understand the distinction between assets and liabilities. To help readers grasp these two phrases, the author creates a simple picture of these two principles to encourage people to buy assets to strengthen the asset column while limiting liabilities (expenses) to a minimum. According to the author, impoverished people stay poor because they do the opposite. They amass obligations and have no assets, causing their balance sheets and income statements to appear out of whack. According to the author, it is important for people to understand that it is not how much money they make, but how much money they keep, and this is an important idea that this chapter concentrates on.
#4 Mind Your Own Business
The author gradually presents the notion of real estate investing in this chapter, using McDonald’s as an example. He claims that while McDonald’s may not have the finest hamburgers in the world, it does possess the “most valuable junctions and streets in America.”
Individuals must mind their own business, according to the author, if they want to become financially self-sufficient. They should not be concerned about their employer’s company; instead, they should seek to become their bosses and grow their enterprises.
The author continues his explanation of asset creation. To him, real assets are everything with monetary worth — stocks, bonds, mutual funds, income-producing real estate, notes, intellectual property royalties, and so on.
This chapter also shows the author’s preferred investments, which are real estate and equities. He claims that when it comes to real estate, he starts small, exchanges his properties for larger ones, and then defers paying taxes on capital gains using one IRS technique.
#5 The Growth of Taxes and the Power of Corporations
According to the author, the poor allow huge machinery (corporations) to exploit them, but the affluent know how to employ big equipment. This means that the wealthy have the expertise and know-how to leverage the corporation’s authority to safeguard and improve their holdings.
According to the author, the benefit of a company over a person is in how companies pay taxes. He makes a straightforward point: people earn money, pay taxes on it, and then live with what’s left. The company, on the other hand, makes money, spends it all, and gets taxed on what remains. The author goes on to say that people may be unaware of how much they are being influenced since they labor from January to mid-May to enrich the government by paying taxes on their earnings. Meanwhile, the wealthy are scarcely taxed.
The author suggests that strengthening one’s financial IQ is one method to escape the monotony of daily life. This is achieved through learning about accounting, investment, market analysis, and the law. He claims that being uninformed leads to bullying, but being knowledgeable leads to “you having a fighting chance.”
#6 The Rich Invent Money
The author elaborates on the topic of self-doubt. He claims that everyone is born with potential, but that talent is stifled due to self-doubt and fear. He observes that those who are courageous and adventurous are more likely to succeed than those who are educated and intelligent. People never go ahead financially, even if they have a lot of money, because they miss out on possibilities, he emphasizes. The majority of them just wait for a chance to present themselves. The author believes that individuals should generate their luck rather than wait for it to come to them. He claims that it is the same with money. It has to be made.
The author examines the significance of education in this chapter (although some critics say that he appears to downplay its importance). The author states unequivocally, “a trained mind is a wealthy mind.” According to his research, there are two categories of investors, each with a distinct mindset: those who choose packaged investments and those who tailor investments to their own needs.
The author advises individuals to hire people who are smarter than them since an intelligent person grows his knowledge base by capitalizing on the information of others and so has greater influence over others who don’t know.
#7 Work to Learn, Don’t Work for Money
This is the chapter in which the author discusses the abilities that people must have to be financially successful.
The reader is shown an example of a young lady with a Master’s Degree in English Literature who was outraged when it was suggested to her that she learn to sell and perform direct marketing. She didn’t expect to have to drop so low after all her hard work for her degree to learn how to be a salesperson, a career she didn’t hold in high regard. The author uses this example to show that there are other talents that people must develop to achieve financial independence.
The author highlights leadership abilities. Individuals, he claims, must understand how to handle the financial flow, processes, and people. He adds selling and marketing talents to the mix. He places equal value on communication abilities. He claims that many people have a scientific inclination and a wealth of information, but they fail badly in communicating. This is the group of people who are “one talent away from an immense fortune.”
The author highlights one noteworthy characteristic of great affluent families: they give money away — a lot of it — in contrast to the impoverished, who believe that generosity begins at home.
#8 Overcoming Barriers
Fear, cynicism, sloth, poor habits, and arrogance, according to the author, are five personality qualities that impede human beings. He says that while fear is natural, how one manages it is what is important. The author expresses his feelings regarding Texas and Texans, saying, “When they win, they win big, and when they lose, it’s magnificent.”
The author contends that it is not just a matter of balance, but also of FOCUS. He advises that the world’s Chicken Littles be disregarded. They’re just worried about the sky collapsing, and they’ll spend the rest of their lives being pessimistic. He claims that he often hears individuals declare they want to be wealthy, but when it is mentioned that money may be made in real estate, their first reply is “but I don’t want to fix toilets.” The author finds it humorous that they are more worried about little matters such as toilet repair than with what is ahead in real estate.
Finally, the author asserts that greed is beneficial, thus when presented with a dilemma, a person should constantly question, “What’s in it for me?”
#9 Getting Started
This chapter contains advice on how to create and grow personal wealth. His first piece of advice is to discover a motive larger than reality to drive you. What he means by this is that through boosting the intellect, one may awaken the financial genius inside oneself. He believes that humans must have a strong sense of purpose to live.
The following suggestion is to nourish the mind. The author claims that through feeding the intellect, humans get the ability to choose.
The author also urges individuals to pick their friends wisely. He suggests avoiding folks who shout endlessly that the sky is falling and instead encourages readers to spend time with people who like talking about money since they may have good insights to teach.
The author also believes people should study one area before moving on to learn another, albeit it is crucial to pick what one studies.
Another guideline that most individuals do not follow, according to the author, is to pay yourself first. Even if they are short on funds, they must pay themselves first. This goes hand in hand with efficiently managing three things: financial flow, people, and personal time.
Another suggestion from the author is to be generous. He believes that paying one’s broker handsomely makes sense since he is an ally and “your eyes and ears to the market.”
The author recommends having heroes. They are vital in life since they not only inspire but also make everything appear so simple. They cause the human mind to wonder, “If they can do it, why can’t I?”
“Teach and you shall get” is another suggestion shared by the author. His thoughts on the subject are eloquent: “There are powers on this planet that are smarter than we are.” You can get there on your own, but it will be much simpler with the assistance of the forces that be. All you have to do is be kind with what you have, and the forces will reciprocate.”
#10 Still Want More? Here are Some To Do’s
This chapter serves as a complement to the preceding one. It provides readers with additional advice to help them achieve financial success. One piece of advice is to stop doing what you’re doing if it’s no longer working or viable. The author encourages readers to seek out fresh ideas and to pick the brains of those who have the experience and have previously done what they want to achieve. He recommends staying on the learning curve by taking classes, purchasing cassettes, and attending seminars.
The author advocates looking in the correct areas while seeking real estate investment prospects. One method is to go for a jog around the neighborhood of interest. People can buy real estate even if they don’t have enough money for a down payment. The author claims that with a little ingenuity, anyone may even create money with no capital.
