Wisdom of Rich Dad

I got this from a pal, Derrick.

I totally agreed that graduation means entering into the Rat Race, as described by Robert Kiyosaki.  And 1.3 millions new “rats running the same Rat Race” each year in the US alone, with mostly without the adequate financial knowledge! 

It is alarming and worrying and no wonder there are many initiatives, awareness programs and acknowledgements from various parties ranging from government agencies, educational agencies, financial agencies to communities, mushroomed to stress the importance of financial education and try to tackle the issue at the root.

I just wonder how much influence Robert Kiyosaki’s “Rich Dad and Poor Dad” and his other works might have on the rising awareness of the importance of financial education.  Perhaps a lot?

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For Millions of People…
Graduation Means ‘Welcome To The Rat Race!’

As the 1.3 million college graduates exit academia for the work force – armed with a sheepskin and laden with debt – The Rich Dad Company, an educational products organization best known for its international best-selling book Rich Dad Poor Dad, offers this message: “Congratulations, Grads – and welcome to the Rat Race!” 

That debt – $22,221 on average… as reported by Student Monitor LLC, a leading market research firm – represents both credit card debt and student loans. Debt that, according to that company’s survey stats, will take eight years to pay off. And, in most cases, there’s more where that came from. It’ll take the shape of car loans, revolving credit, and even mortgages.  

In Rich Dad’s world, the Rat Race is that vicious cycle of living paycheck to paycheck… and the conventional wisdom that getting a good education, good grades and a safe, secure job (“with good benefits”) will lead to ‘the good life.’ Or, at least, a steady pay check to so that there’s money to make monthly payments on expenses and debt.

These new grads are in good company: millions of Americans contribute their fair share to the $100+ billions in credit card debt ($46.6 billion with Capital One Financial alone) in the US. Debt that, in many cases, will take decades to pay off.

Nearly 90% of college grads surveyed in 2004* reported that they were “prepared” for the responsibility of credit cards… over half (56%) of them didn’t know the APR (annual percentage rate of interest) on those cards. In this case, ignorance may not be bliss.

So what is Rich Dad’s answer to the Rat Race dilemma so prevalent in our society? That’s easy: Financial education. And they’re not alone in that mission.

In mid-April of 2005 the Federal Reserve unveiled a new website that Fed chairman Alan Greenspan calls “an online tool that offers students easier access to a wealth of information in the areas of economics, banking and financial services.”

In 2002, Greenspan was quoted as saying that a good foundation in math would improve financial literacy and “help prevent younger people from making poor financial decisions that can take years to overcome.” He added, “People need to be able to read, write and speak basic financial concepts in order to make informed investment decisions.”

“The challenges Americans face – with social security, consumer debt, bankruptcy law changes, and retirement planning – don’t begin at age 65,” says Kiyosaki, “They begin at age five, when kids enter school.” According to Kiyosaki, improved “Financial IQ” can equip Americans, of any age, with the knowledge and resources to take a proactive role in their financial future.

In his no-nonsense style, Kiyosaki hammers home the message: “My banker has never asked to see my report card.” What bankers want, instead, is your financial statement.

“Your financial statement is your real-world report card,” says Kiyosaki, “It reflects your Financial IQ.”

 

It’s the Chinese Lunar New Year period and I will be taking a 1-2 days’ break from my blog to celebrate this important Asian festive event.

 Happy Chinese Lunar New Year!

Subsequent to my post on 16 Feb 2007, “Students learn personal finance from school-based credit union“, the author at gradmoneymatters.com has some doubts on whether credit union can really educate high school children on financial lessons.

I am a big proponent for teaching the younger generation about money as early as possible. But still, I couldn’t help but wonder, will the credit union branch really teach the high school students their most necessary money lessons?
I think the main problem is that banks and credit unions teach you lessons about managing your own money. In today’s world where credit comes knocking on your door, this is no longer enough. It is more important to teach the younger generation how to handle money, that is not their own. We need to make sure the younger generation understands the implications of borrowing and living life large from their credit cards. We need to make sure that when the young adults move out of the house, from the constant guidance of their parents, they are capable of distinguishing between “income” and “credit”.

The author instead advocate that financial lessons should be taught at home by the parents insead.  It is the author’s belief that parents should do their part to impart financial knowledge such as the use of credit card to their children while they are young, so that the children would be equipped on when to use credit (or what Robert Kiyosaki mentioned as good debt) when they moved out on their own. 

So, while in no doubt opening credit union branches in the schools is a good first step, measures beyond these which provide a healthy understanding of credit are needed as well. The best place to probably teach these lessons is home. Parents can start teaching their children the inner workings of a credit cards, by adding their children as additional users on one of their cards, before the children move out of the house. By making the children pay their statements each month in full using their allowance, they can educate them that credit is not “free money” and comes with strings attached. Also, by making sure that the card is paid off in full each month, the good habits of managing credit cards correctly can be ingrained in them right from young age.

Seriously though, parents should make sure that the children know from a relatively young age (high school?) that the power of credit is a double edged sword; if harnessed well, it can bring life long freedom and flexibility, and if misused, it can bury you to the eyeballs in misery. They should make sure that the children know when and how to wield this double edged sword. Because, once they are out of the house and on their own, they will be courted and crooned by credit card companies on every corner they turn.

They only have what they have already learnt to rely on, to save them from an abyss of bad financial decisions. As one of the ads on TV says “Talk to them. A part of them will always listen to their mother”.

While I am not against the idea that finanical lessons can be taught at home by the parents, I do not see that it is the only and best way.  The issue I see is that those children who already has very little financial knowledge, their parents are likely to be have low financial literacy as well.  Parents are likely to educate their children based on their own experiences.  How the parents are going to teach their children about the pros and cons of using credit card if they themselves are already deep into credit card debts.

Take Robert Kiyosaki and his “Rich Dad” and “Poor Dad” as an example. His natural dad, “Poor Dad”, does not have the adequate financial knowledge, and Robert Kiyosaki was fortunate that he has his “Rich Dad” to teach him financial lessons.  However, not all us can and will have a “Rich dad” like Robert Kiyosaki has. 

Therefore, there is no one best way of how financial knowledge could be taught.  It takes all available means whether it is through the parents, or through the education system or even programs from credit unions.  If you have a “Rich Dad” like Robert Kiyosaki, then good for you.  If not, you would have to find other available means to acquire your financial knowledge, if you want to be as wealthy as Robert Kiyosaki.

In this video, Robert Kiyosaki talked about the Rat Race in the Cashflow 101 game.  He mentioned that what is the Rat Race and what you should do.

 

The major motivation behind “Rich Dad, Poor Dad” for Robert Kiyosaki is to highlight the importance of financial literacy and the general lack of it in the mass population.

Whether Robert Kiyosaki’s books have contributed significantly to the rising awareness of the need to improve on our financial knowledge or not, it is always heartening to know that not only are schools making an effort to educate the youngs, even finance related institutions are also taking an active approach to support this movement.

SHARON SMITH – The (Harrisburg) Patriot-News

HARRISBURG, Pa. – It isn’t part of the lesson plan, but students at Susquehanna Township High School are getting an education in managing their personal finances, thanks to a credit union.

Members 1st Federal Credit Union opened a branch last week in the high school. It’s the third school-based branch for Mechanicsburg-based Members 1st. The goal is to teach students how to be financially responsible.

Members 1st also has branches at Mechanicsburg High School and Northern High School near Dillsburg. The branches are more about education than attracting business, said George Nahodil, spokesman for the credit union.

“Quite honestly, it’s not a moneymaker for us,” he said. “It’s something we feel very committed to. It’s good for all of us, for everyone in society, that people are responsible with their money.”

Housed in the same room as the school store, the Susquehanna Township High School branch offers students and faculty members the same types of products and services available at a regular branch: checking and savings accounts, loans and other investment options.

Perhaps the most noticeable difference is a sign indicating that students can only withdraw $40 a day from their accounts. Faculty members can take out however much they want.

David Volkman, superintendent of Susquehanna Township School District, sees it as a good opportunity to teach students one of life’s basics: money management.

“I look at it as an early intervention program,” he said. “What we’re about in education is preparing kids for the future.”

That’s where Anne Bednar, who manages the Members 1st branch in Linglestown, comes in. She spends Mondays and Fridays with Lowe at the school branch. Bednar might supervise the operation, but her true purpose is to teach students how to save and build good credit.

For example, she can help students figure how much money they would need to save if they want to buy a car in the next two years. It’s the kind of lesson she never got when she was in high school.

Not to be a wet blanket, but I cannot help myself not to give doubt to what Member 1st described the branches as “are more about education than attracting business.”  I am quite sure that they would have given deep thoughts as how such a program would actually benefit them, obviously in the long run.  Off my head, I could guess that starting off with the young, Member 1st will be looking at “locking them in” with them and building long term relationship with this group of potential loyal customers.  Nevertheless, it is still a win-win situation.

by Alex Anderson

People are very entertaining if you just take time to listen to what they say and observe how they act. After all, that’s why reality television shows are so popular. Now you can watch people from the comfort of your living room chair.

The things they do and say are so highly entertaining because people so often react based on emotion. Often, that emotion is fear. Throw in a little laziness and a willingness to believe whatever they hear that justifies their fear and there you have them—the two most wealth-preventing myths about real estate investing that were ever conceived. And those two are the parents of the third.

Those myths are, of course, fear-based. They are also myths that would not exist if it were human nature to educate themselves about a thing before making up their minds about it.

What are those myths?

1.  Real estate is a gamble.
2.  Real estate is risky.
3.  There is no way I can possibly invest in real estate.

Naturally, Myth No. 2 follows logically from Myth No. 1. Assuming, of course, that logic goes into the thinking at all when someone determines these things.

Robert Kiyosaki, author of the Rich Dad book series, said that there are people out there who honestly believe that real estate investing—or any type of investing at all, really—is all about luck. These types of investors throw their money at anything that looks good to them. But they haven’t taken the time to educate themselves on what is a good investment. So what “looks good” to them is based on a purely emotional reaction—or worse—a guess.

Real estate investment cannot be accurately compared with, say, Black Jack or Roulette because those games are guessing games. Real estate investment is not a guessing game. Real estate investment involves looking at financial documents and determining from them where you should spend your money. It’s not about guessing—it’s about reading.

And Myth No. 3, well…that’s the biggest myth of all. Anyone at all can invest in real estate, if they are willing to take those first important steps: Make sure you have the capital by increasing your wealth, which is generally done by building a business system, and educate yourself in the process of investing.

There’s the rub. Most people are simply not willing to take those preliminary steps. They think they are wasting time if they attempt to learn something. The extra money they have is burning a hole in their pocket and they can’t wait to throw it away. So that is exactly what they do.

There is risk, of course. Anytime someone sets out to learn a new skill—even investing—they will make a few wrong moves. But that is all part of the process. As time goes on, you will get better at it. So of course, you shouldn’t toss your life savings into the pot. Simply start out small and work your way up, as you would with anything. Kiyosaki compares it to piloting an air plane. It’s not something you would consider doing if you had never been in the cockpit. But with time and lessons and practice, it becomes something you can do with ease and confidence—something you can do safely. But you must invest the time to learn how.

What really is a risk, Kiyosaki said, is neglecting to educate yourself. When you neglect your financial education you are losing more money than you can imagine—not only the money you invest if you choose to leap without looking, but also the money you will never make if you choose not to leap at all.

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Alex Anderson Helps Regular-People (Just Like You) To Successfully Invest In Real Estate. Enroll In Her FREE, Educational “Investment Property Program” at: http://www.GreatInvestmentProperty.com