Infernal Ramblings
A Malaysian Perspective on Politics, Society and Economics

Robert T. Kiyosaki and Financial Advice

Written by johnleemk on 3:34:19 pm May 3, 2007.
Categories: ,

It was about five years ago when I read one of Robert Kiyosaki's books for the first time. Kiyosaki is a man who, like Paris Hilton who is famous for being famous, got rich by being rich.

Kiyosaki is mainly known for writing books on financial advice, but his most famous one is his first — Rich Dad, Poor Dad. Kiyosaki's advice is quite contrarian to the norms of finance; he insists it is impossible to get rich as an employee, and that education is not very helpful with regard to wealth.

Today, a friend asked me what I thought about Kiyosaki and Rich Dad, Poor Dad. I summed up my opinion as: helpful when it comes to general, overarching principles, but don't take any specific advice from the book.

The most powerful point which I think Kiyosaki makes is that you cannot hope to attain wealth and financial freedom as an employee. This need not be strictly true — many investment bankers and stockbrokers are employees, but a large number of them do attain financial freedom — but as a general principle, it is sound.

A lot of Kiyosaki's specific advice is questionable, however. Many financial writers have criticised him for suggesting, as an example, that you can set up a corporation, and charge things like a holiday to the company, thereby securing tax breaks for business travel. Besides the questionable ethics of doing so, this also sails rather close to the wind legally.

Part of the reason that Kiyosaki's advice is not so sound may be due to the fact that it seems much of his life story, as presented in Rich Dad, Poor Dad, is a hoax. People looking into Kiyosaki's background have failed to corroborate many specific facts about his life; Kiyosaki himself has admitted that the Rich Dad of the title is actually a literary device, and is no more real than Harry Potter.

The most questionable general principle that Kiyosaki seems to emphasise, though, is that education is not helpful and can thus be avoided without any ill effects. I'll be the first to admit that a drastic shake-up of how we educate our young is necessary.

But that does not make education useless when it comes to securing wealth. Although education will not really help you learn how to manage your finances (just one reason why drastic education reform is required), there is an unmistakeable correlation between increased education and increased earning power.

There seems to be no good reason to me to ignore the statistics unless you are absolutely sure you are an outlier. If you are not within one or two standard deviations of the mean financial intelligence — if you are, for example, Bill Gates — go ahead and screw education. But if you aren't positively sure you're so unique, what harm is it to remain on the education track?

After all, it is not as if education — even the rotten education provided in most schools worldwide — corrodes the ability to manage money or permanently impairs your earning power. In many cases, it even improves it because of the networking opportunities available in many universities.

That is why the only sound principle Kiyosaki has to offer is that you cannot count on being an employee to help you become financially free. You have to invest your money wisely, or if you have the entrepreneurial spirit, create a business system which can help you earn passive income.

But still, how much of this is uncommon knowledge? I would think that this is not exactly something new to many middle and upper middle class families. For this reason, I think Kiyosaki's books will not be very useful to those who already come from a well-off background, because this principle is only likely to be unknown to the lower strata of society.

How would I rate Kiyosaki's books overall? On a ten-point scale, I would give Rich Dad, Poor Dad a six. It's worth reading, but there's not much helpful specific information to be gleaned from it; it should be used as a jumping-off point for further financial reading.

Disclaimer: I am not a qualified financial adviser in any way. This information is provided because I have nothing better to do with my free time than write, so if you follow its advice, use it at your own risk.

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Infernal Ramblings is a Malaysian website focusing on current events and sociopolitical issues. Its articles run the gamut from economics to society to education.

Infernal Ramblings is run by John Lee. For more, see the About section. If you have any questions or comments, do drop him a line.

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