Key Concepts in "Rich Dad, Poor Dad"

Escape from the “Rat Race” – Kiyosaki spends the first few chapters of the book discussing the concept of the “Rat Race.” He describes it as a self-defeatist cycle:  an employee works hard for an employer to receive a raise or a promotion and as their income increases, their expenses increase as well. As the employee’s debt increases, he becomes further tied to their job and more reliant upon their paycheck. Furthermore, they are forced to work harder for their next promotion to offset their debts.

Entrance to the “Rat Race” begins as a child. From an early age, you are told that you should work hard in school to get into college. After graduating from college, your next move is to find a secure job with generous benefits and save sums of money aside to buy a house and luxury items in the future. The more debt you incur, the deeper into the “Rat Race” you sink and the harder it is to get ahead.

Kiyosaki believes in the power of freeing yourself from the “Rat Race,” from the cycle of dependence upon your employer for economic welfare and reliance upon credit to buy luxury items. He stresses the importance of minding your own business, acquiring assets, and developing your financial intelligence and a strong sense of discipline to free yourself from the “Rat Race.”

The importance of financial intelligence – Kiyosaki and Sharon Lechter, the author of the volume’s introduction, both recognize financial intelligence as a keystone to getting rich. They wonder why so few people invest time in developing a financial IQ and instead intentionally avoid talking or thinking about money.

They question why financial literacy is not taught in schools. If children learned financial concepts at an early age, they would be more likely to succeed in the future. Instead, many kids never hear their parents discuss money; it is considered rude to bring up the topic of money in social situations.

Kiyosaki elaborates on the components of financial intelligence. He describes ways to develop a solid financial IQ, including understanding and mastering the principles of accounting, understanding markets and how they work, and understanding the law (especially tax law). He demystifies the process of developing financial intelligence and instead suggests that it is easy if you devote some time and energy to focus on your financial life. He believes that following the traditional model of generating income (working for an employer who provides a sole source of income and saving money on the side after paying expenses) is perhaps even more difficult than setting aside time to develop your financial IQ.

Risk Vs. Safety – The book explores the choice between risk and safety with respect to finances. Kiyosaki and his rich dad believe that without risk, you can never be rich. Almost every rich person has experienced a loss of money or some sort of financial failure. Accepting risk is essential on the path to becoming rich.

On the contrary, “playing it safe” never leads to wealth. Kiyosaki cites several examples of people in his life who missed out on great opportunities because they clung to safety, rather than expose themselves to any degree of risk.

He relates a specific incident in which he advised his friend who was looking to get into the real estate business to take a potentially lucrative deal with a buy-in of $5,000. His friend bailed at the last minute because he was worried he would lose all of his money. The unit he discarded later became worth $95,000. His fear and desire for safety prevented him from taking a deal that would have proved to be an enormous financial success.

Kiyosaki and his rich dad believe that first you must accept risk as a necessary part of your financial life, and secondly, you must learn to manage risk. Once you learn to successfully manage risk, you can assess the worth of an investment and also avoid potential financial catastrophes. Most importantly, you can conquer your fear of losing by building confidence in your ability to manage risk.