Wisdom of Rich Dad

Kim Snider is an author, speaker and host of Financial Success Coaching, Saturdays at noon, on KRLD Newsradio 1080, Dallas – Fort Worth.

In this podcast, Kim interviews Kim Kiyosaki about her book, Rich Woman, and the lessons of cash-flow investing.

 

Rob Stock (New Zealand) looks at tasteful and enduring ways to leave money under the tree at Christmas although some ideas come with risks.

 

Struggling for gift ideas? Your loved ones might like a financial present.

Although chocolate money is a traditional stocking filler, there are plenty of options for those wishing to give more durable forms of financial wealth at Christmas. And some of them involve not just wealth, but giving the kind of expertise that can lead to a richer future.

We take a look at 12 ways to transfer wealth as a present, one for every day of Christmas.

Cash: Tried and tested, and can be spent on anything. Works for kids, but not for many adults, although some cultures have no problem with gifts of cash. What’s acceptable now? Depends on the age. Some argue that for a teen, it is the equivalent of a tank of petrol ($80 to $90 or so). Others the cost of a good book, or an X-Box game, excluding the overpriced new ones ($25-$40).

Cash, but straight into a KiwiSaver account: Likely to cause some resentment, particularly as they can’t touch it until they are 65, or until they buy their first home. Could help create a savings habit.

Vouchers: Hand over with a message to spend soon in case the store goes bust and leaves you as an unsecured creditor unlikely to see much of value of the voucher. Just ask those with Sounds vouchers who have seen the store chain go into voluntary liquidation. Some sources suggest there could be as much as $1 million worth of unused Sounds vouchers. Tend to be sold at face value.

Prepaid cards: Like the Prezzy Card from the PostShop. These are pre-loaded swipe cards that work off the Visa credit card system. Recipients can spend them anywhere Visa is accepted. Also come with a sell-by date, after which the value stored on them belongs to the card issuer. A $50 card will cost $55, unless it’s bought online.

Gift cards: from the likes of Borders and Mitre 10. These are basically vouchers on a card, and should also come with a warning not to hold on to them for long. Just like vouchers, you lose them, it’s your bad luck. Much friendlier to hand over than cash, and of course, the giver limits where they can be spent.

Bonus Bonds: Always a traditional Yuletide seller. The ANZ, which owns them, sells a lot at Christmas and offers extra draws and prizes to those who buy them (or receive them) during a set period this year until December 31. Bonus Bonds are basically units in a huge managed fund invested largely in safe assets like fixed interest. They can be bought in batches as small as $20. The returns are distributed as prizes to randomly selected bond-holders. In that they are a bit like perpetual Lotto tickets, but have the kind of durability a Lotto ticket lacks and so make a reasonable gift.

Gift them shares: Everyone has a gifting limit each year $27,000 each, although no one’s going to quibble a few bucks’ worth of shares. Avid investors hoping to get youngsters into investing might gift them a few shares from their portfolio to get them on the right track.

Buy them gold, or silver: Gold and silver bullion coins can be bought from the New Zealand Mint (a private business) and gifted. A silver coin would have set you back around $23.23 on Thursday last week, provided you bought in sheets of 10, while a .9999 pure one troy ounce gold bullion coin would have set you back $1151. Many hold these not as a way to punt gold, which has done very well, as has silver, but as a store of value that can be buried in the garden in case all else goes wrong, a little like an insurance policy. Those who bought gold at the peak of the 1980s would not agree.

A collector’s coin: PostShop sells these commemorating events and culture. Fun though they may be, they are not a great investment. Just look at the prices paid for these on TradeMe to see that.

The gift of knowledge: Buy them a place on an investment course. Take care, though. Some courses are little more than sales pitches. The Shareholders’ Association offers courses on investing in regional centres, ranging in price from $35 to $80.

A money book: There are plenty of titles available. Make sure you match the book to the recipient. Someone you know is struggling to get their head around KiwiSaver might value Peter Hensley’s book on the subject, while a TradeMe junkie might get a lot out of Michael Carney’s new edition of Trade Me Success Secrets. Sometimes a book can be life and fortune changing.

A money game: Play your way to wealth. There are games available from the likes of Rich Dad, Poor Dad author Robert Kiyosaki, or home-grown characters like property expert Kieran Trass. A wee word of warning though. These games can be unusually expensive, their sell being that the money will be well spent in the long run. For example, Kiyosaki’s Cashflow 101 from Empower Education costs $395, while Brad Sugar’s Leverage: The Game of Business will set you back $329 from Richmastery’s online bookstore.

As you know, 2007 has been a turbulent year in politics, war, weather, and money. For many families it has been a tough year financially, especially if they lost their home or their job due to the sub-prime credit market mess. During this holiday season, it is more important than ever to be kind to those who struggle financially and to be grateful if you are financially secure.

In 1997, Rich Dad Poor Dad was first published. When rich dad said, “Your house is not an asset,” it was met with howls of protest. Today, millions of people are finding out how true that lesson is. As you know, real estate does not necessarily make you rich, but financial education can. At least with a good financial education you have a better chance of telling good investments (and good financial advisors) from bad ones.

In 1997, the underlying message in Rich Dad Poor Dad was about the importance of financial education. Today, in a world of financial turmoil, financial education is more important than ever. This is why we at The Rich Dad Company are offering these special Holiday Packages for you to give to people you love. These gifts are more valuable than money and have the power to change the lives of those who receive them.

So the bad news is the world is in financial turmoil. The good news is, with a sound financial education, you can turn this turmoil into a blessing.

This holiday season let’s pray for peace on earth – and for peace of mind.

~ Robert Kiyosaki~

Life’s a lesson: Kids learn reading and arithmetic in the classroom. They learn sport, and a sense of fairness, on the playground. But surveys show that kids learn everything they know about money from their parents. Precisely when they learn about earning, saving and spending is difficult to pinpoint, but as a parent, it’s within your power to raise financially savvy kids if you follow your common sense and these tips: 

Start early.

Most financial experts agree that children have a sense of money as early as age 3. Parents who don’t tackle the issue by preadolescence are probably putting their kids at a serious disadvantage. By junior high school, kids should not only have a sense of spending and saving, but also about budgeting and credit.

“It’s more important than ever to start the learning process early,” says Neale S. Godfrey, author of The Ultimate Kid’s Money Book and president of the Children’s Financial Network. Godfrey says that between online purchasing power and easy credit, it’s easier for kids to make mistakes. And the stakes are much higher than they were a generation ago.

Create a sense of responsibility.

Your earliest exchanges with your children on the subject of money should tie goals to a plan of action for achievement. Mary Rowland, author of The New Commonsense Guide to Mutual Funds, wasn’t crazy about her son’s interest in video games. But when he announced that he was going to buy games with his own personal savings, Rowland saw an opportunity to put him in charge of his own choices and to teach him the value of having a financial goal. “His willingness to take responsibility for the purchase overrode my objections and taught him the power of having your own money,” says Rowland.

Most experts agree that once you provide your children with the means to money—through an allowance, family gifts, or chores around the house—they need to have the freedom to decide what to do with it. Otherwise, the lesson on responsibility is lost. But they also need your guidance to help them consider worthy goals. “You wouldn’t give your teenagers the keys to the car without first teaching them how to drive,” says Godfrey. Responsible financial habits require the same learning process.

Be open about family finances.

A generation ago it was unthinkable that children should be privy to information about the family budget but then again it was also a time when no one ever spoke about drug use or a bunch of other difficult subjects with their kids. However, if you include your children in the budgeting process, they will develop a sense of the tradeoffs that you must make in everyday life: Should we take a modest vacation and put extra funds toward a sporty family car? Or, should we make do with the old clunker and opt for an expensive getaway? “When children participate in the decision-making process, they are less likely to feel entitled—or deprived,” says Rowland.

Encourage savings through personal example and incentives.

Children are like sponges. They soak up everything that goes on around them. They’re also quick to point out inconsistencies in what their parents say versus what they do. It’s no surprise, then, that the notion of saving is likely to remain foreign unless it is supported by “walking the walk.” One of the best ways to do this is by sharing a special goal. You can demonstrate the power of putting away a certain amount of money each week, track progress toward the goal, create excitement, then share the joy of achievement when the goal is met.

Teach savings in steps.

Once the notion of savings is introduced, you can broaden the discussion to talk about the difference between saving and investing, compound interest, and long-term goals such as retirement and college.

Then, when your kids are old enough to have their own personal goals, encourage them by offering to match their savings to achieve an ambitious goal. Better yet, once they start earning money, agree to match their savings dollars in a ROTH IRA. Save $200 a year in a Roth IRA when your child is between 12 and 21, and you can help them build a tax-free nest egg of more than $211,000 at retirement if the money compounds at 10-percent.

Turn mistakes into valuable lessons.

Everyone has done it: blown a little too much on a big purchase, gotten in over their heads—as the saying goes, “sadder but wiser.” When your kids do it, help them learn from their mistakes. If your son squanders his allowance on day one, suggest some strategies for making it last come next pay day. Don’t scold him—you’ll only make him reluctant to discuss his money issues with you down the road. But don’t advance him extra money in between. He should feel the pinch.

Better yet, if you can see the mistakes coming, try to intervene. “It’s usually easier to avoid a disaster than to pick up the pieces after the fact,” says Godfrey, who warns against using money to play “gotcha” with your kids. “The learning experience should be positive—and forgiving.”

Teach the proper use of credit.

Robert Kiyosaki, author of the best-selling Rich Dad, Poor Dad, believes that a child’s attitude about credit can determine whether he or she grows up rich, middle class, or poor. Before you decide how you will approach the issue of credit, look at your own habits. They will probably influence your children more than any other thing you say or do.

Whatever you do, it’s important not to back away from the issue. Steve Rhodes, co-founder of Debt Counselors of America, the first Internet-based credit counseling agency, sees the Internet as a valuable new tool to teach kids about credit and debt. For example, at DoughNET.com, iCanBuy.com and RocketCash.com, kids can experience real-world saving, credit and purchasing online in a safe environment. They can even make donations to charity at DoughNET and iCanBuy.

The three sites are geared primarily to pre- or early adolescents. For teenagers, Godfrey suggests a secured credit card through a bank. “After a year of responsible behavior, most teenagers are ready to graduate to an unsecured card,” says Godfrey.

Money—Teaching Tools
A regular allowance is one of the best ways to teach the skills they will need to manage their money. Below are the most common questions about allowances:

How much? It depends on the age of the child. The national average, according to a recent Consumer Reports survey, is between $4 and $9 a week for 8 to 12 year olds. Should you require your kids to work for their allowance? If your goal is to teach your children how to manage money, many experts feel that you should not link allowance to chores on the theory that children should be required to pitch in without associating a dollar tag with every little effort. Yet, others believe that using an allowance as a payment for duties around the house can teach kids that they don’t get something for nothing.

Perhaps the best approach is to find some middle ground: An allowance, plus extra pay for work above and beyond regular household chores can reward your ambitious child without penalizing the less materialistic sibling.

Should you dictate how the money gets used? The Consumer Reports survey also showed that children who receive regular allowances were twice as likely to put aside some money for savings and charity than those whose parents gave them spending money on a less formal basis. “When we started with allowances,” says Rowland, “we required our children to put aside a portion for saving and giving. Now, they set their own goals.” Rowland’s daughter recently took $60 of her own babysitting money to contribute to a national disaster relief she had learned about at church. “Sometimes, your kids learn more than you ever expected.”

Teach—and Learn
Of course, there’s no one right way to teach your kids about money. These guidelines can help you create a positive experience with money early on in your children’s lives, which can shape a more responsible, less stressful relationship with money when they’re older. And, if they prompt you to take a closer look at your own financial habits, that’s a lesson the whole family can take to the bank.

 

An IRA is a special type of account that comes in a few flavors, but for now, we’re going to focus on the two most common: traditional and Roth.

Traditional IRA

The traditional IRA allows you to invest a certain amount of your income and deduct those contributions from your taxable income (you invest with pre-tax dollars). In an extremely simple example, if you make $50k per year and you invest $4k in an IRA, your taxable income is reduced by $4k, to $46k. However, there are a few catches:

1. In general, the money can’t be withdrawn without penalty until the account owner reaches 59.5 years of age. There’s a list of exceptions, most of which are related to financial hardship and certainly not something you would want to plan for.
2. You MUST start withdrawing the money at age 70.5.
3. When you actually withdraw the money at retirement, the withdrawals are treated as normal income and taxed as such.
4. For 2007, you’re limited to $4000 in contributions per year if you’re under age 50. This will increase to $5000 in 2008.
5. If your household is covered by an employer-sponsored retirement plan, then there are income limits for the IRA, but they’re messy and complicated. Essentially, if you make less than $50,000, you’re safe. More on this later…

Roth IRA

A Roth IRA is similar to the traditional IRA, but the taxation works in reverse: instead of not paying taxes on the initial contributions and paying taxes on the withdrawals when you retire, as with a traditional IRA, a Roth IRA allows you to pay taxes on your initial contributions and withdraw your earnings at retirement tax-free. There are several other advantages as well:

• Higher income limits: Single filers can contribute if you make less than $99k. Joint filers can make up to $156k. This is simplified, but that’s the general idea.
• There are no required withdrawals at age 70.5, as with the traditional IRA.

Which to choose?

This is a very complicated question that depends on future variables for the optimal answer, but in general, you should invest in a Roth IRA if you expect that you will be in a higher tax bracket at retirement than you are now. My personal opinion on the subject is that with the unfunded liabilities our government is currently incurring, they’ll have to raise taxes severely in the future to compensate. I like the peace of mind that the Roth IRA offers because I know that I’ve already paid my taxes on that money and anything I withdraw at retirement is mine to keep. This particular subject (traditional vs. Roth, both for IRAs and for 401k’s) is worth delving into deeper in a future post.

What can you invest in with these accounts?

Pretty much anything, provided that the place where you open the account offers it. You can invest in stocks, bonds, mutual funds, index funds, hedge funds, money market funds, real estate, options, etc. Keep in mind that I’m not recommending most of these asset classes, especially when you’re just starting out. But it’s nice to know that you can choose the best investments for your situation, including down the road when your investing prowess has increased.

- Robert Kiyosaki 

The subprime mess is widespread, and it seems to be getting worse. It’s certainly worse if you’re about to lose your home.

The stock market is schizoid — up one day and down the next. If you’re a day trader, this volatility is pure heaven; if you’re getting ready to retire, it’s likely to give you a heart attack.

Big Deal

As for commercial real estate, it’s a great market. I just bought a 350-unit apartment house in Tulsa with an assumable loan at a 4.9 percent interest rate. Rents are low, the oil business is creating jobs, and demand for apartments is high.

As with any market, the real estate business is terrible for some people and couldn’t be better for others (like me).

But as much as I love real estate, I believe the biggest opportunity today is in silver. I think this precious metal is about to become the most spectacular investment in recent history — bigger than oil, even bigger than Google.

All That Glitters

Let me give you some reasons why:

• Silver is a consumable industrial commodity.

It’s used in computers, cells phones, and electrical relays. This means that as countries like China, India, and Vietnam, and regions like Eastern Europe, become more modernized, the demand for silver will increase.

Silver is also applied in medicine. One little-known use is as a bactericide, a role silver has filled throughout history. Today, medical devices such as catheters and stethoscopes use silver, and every hospital in the western world uses silver sulfadiazine to prevent infections.

• Silver is scarcer than gold.

Gold is hoarded. It’s estimated that 95 percent of all gold ever mined is still around. The exact opposite is true of silver: An estimated 95 percent of all silver ever mined has been consumed.

Forty-five percent of all silver mined is burned up in industrial uses. Jewelry accounts for 28 percent, and 20 percent has been consumed in photography. Only 5 percent is in coins.

• Silver supplies are down.

In 1900, it was estimated that the world had 12 billion ounces of silver. By 1990 it had dropped to 2.2 billion ounces. By 2007, the supply was down to 300 million ounces.

Some of the more pessimistic forecasts estimate that the world will be out of silver in about 10 years. This could be catastrophic to the world economy. In 10 years, silver might have as much of an impact on the world economy as $200-a-barrel oil.

A Safe Haven?

As a precious metal, silver is also money. And as the U.S. dollar drops, gold and silver are seen as a hedge against a loss of value. As more and more people wake up to the reality that their cash is trash, real estate is a gamble, and the stock market is too volatile, silver may be a great safe haven.

As I write, silver is approximately $13 an ounce. If industrial consumption continues and monetary panic sets in, who knows how high the price will go? Between 1979 and 1980, silver went to $48 an ounce. In today’s dollars, that would be the same as $80 an ounce.

And recently, exchange traded funds in silver have been added as a way for investors to hold silver. The reason I find the silver ETF so intriguing is because an ETF represents real money — not fake money like the U.S. dollar.

The ETF Solution

Prior to 1963, a U.S. dollar was real money that could conceivably be exchanged for silver. After 1963, it became a Federal Reserve note that was no longer backed by silver. A silver ETF is similar to old-time money, then, and as the U.S. dollar continues to drop in purchasing power these new ETFs may become the “new old money.”

The significance of the new silver ETF is that it makes owning silver simple and convenient for the general public. Owning silver ETFs is easier than owning physical silver, which is heavy and requires security such as a safe. And owning silver ETFs is safer than buying a silver mining stock, which can be risky.

Silver ETFs are also pretty straightforward: If silver is $13 an ounce, you buy so many ounces at that price. If the price of silver goes up, you make money; if the price goes down, you lose money. The risk is minimized because you’re buying physical silver — you aren’t buying a share of a silver company, which can go bust. As long as the ETF is honorable and protects your silver, your investment is secure. (A caveat: Silver ETFs haven’t proven reliable yet, so use caution if you take this route.)

A Rich Find for Investors

My prediction is that the industrial demand for silver will continue to go up as the wider world becomes more modernized. At the same time, as the dollar drops in purchasing power, the average investor will wake up to the convenience of owning silver ETFs and start to buy them.

Consequently, the ETF side will dry up the silver supply for the industrial side. Someday in the near future, then — maybe in two to five years from now — these two forces will collide and the price of silver will go up faster than anything on the market today.