Robert Kiyosaki: Increase your financial IQ
Increase Your Financial IQ is the latest installment in Kiyosaki’s tremendously popular “Rich Dad” series of books. These best-sellers have motivated many people (including me) to take control of their financial lives. But some (including me) have expressed concerns over the author’s advice:
- Kiplinger’s Personal Finance: They say they want you to be rich
- John T. Reed: An analysis of Rich Dad, Poor Dad
Kiyosaki loves to play the rogue, offering unconventional suggestions for building wealth. He’s a vocal detractor of mutual funds, for example, and frequently seems to be pushing a new “hot” investment: real estate, oil, gold, silver. He likes to make provocative claims like “people should not live below their means”.
Yet if you dig a little deeper, it becomes clear that Kiyosaki is saying a lot of this just to get attention. It’s a marketing ploy. He really does think it’s important to spend less than you earn — he just thinks the best approach to a budget deficit is to raise your earning power instead of reducing spending. Armed with my own advice about how to read a personal finance book, I decided to give Increase Your Financial IQ a chance. I approached it with an open mind. Ultimately I read it three times. I’m still not sure what to think of it.
Financial Intelligence
“It is not real estate, stocks, mutual funds, businesses, or money that make a person rich,” Kiyosaki writes. “It is information, knowledge, wisdom, and know-how, a.k.a. financial intelligence, that makes one wealthy.” He notes that buying a new set of golf clubs won’t improve your game, but paying for lessons will. It’s his hope that Increase Your Financial IQ can help readers improve their money “game.”
Kiyosaki divides financial intelligence into five “Financial IQs”:
1. Making more money
This is measured by how much money you earn. If you make $100,000 a year, you have a higher Financial IQ than someone earning $30,000 a year.
2. Protecting your money
Once you earn your money, you need to hold onto it. Protecting your money, especially from taxes, is the second Financial IQ.
3. Budgeting your money
“Being able to live well and still invest no matter how much you make requires a high level of financial intelligence,” Kiyosaki writes. This Financial IQ is measured by how much money you have left after expenses.
4. Leveraging your money
This Financial IQ is measured by return on investment. How well do you make your budget surplus generate more money?
5. Improving your financial information
Financial information doesn’t just mean knowledge of basic financial concepts — it also means detailed knowledge of the investments you make.
Most of the book is devoted to exploring these five aspects of financial intelligence in detail.
Financial IQ #1: Making More Money
Many people fail to acquire wealth, Kiyosaki says, because they want the money without the work. “What many people do not realize,” he writes, “is that it’s the process that makes them rich, not the money.” It’s by learning to make money that you can continue to make money. For each person, the process will be different. We each have different goals, dreams, and ambitions. The important thing is to find the best way for you to make more money, and then to build your goals around this.
In order to make money, you must also learn to control your emotions. You must learn to defer gratification. Don’t sacrifice your financial future for a few bucks today. Don’t give up. The going can seem tough at times, but if you’re confident in your course, you can learn to solve the problems. Keep your eyes on your goal and find a way to reach it.
According to Kiyosaki, the key to making money is learning to solve problems. “In order to grow wealthy,” he writes, “you must come to terms with the fact that problems will never go away.” Identify the problems preventing you from wealth, tackle them head-on, and the money will follow.
Financial IQ #2: Protecting Your Money
Once you’ve begun to make money, you need to protect it from “financial predators”. Kiyosaki says there are seven of them to beware:
- Bureaucrats — Kiyosaki acknowledges the need to pay taxes, but he argues that it’s his job to (legally) pay as little as possible.
- Bankers — Banks are constantly trying to siphon bits of your money in the form of fees. It’s important to watch out for and protect against this.
- Brokers — Similarly, fees from brokers can chip away at your wealth. He cites brokers who “churn” accounts, buying and selling stocks frequently in order to generate more commissions. (We had this happen to us once with the box factory’s retirement account.)
- Businesses — “All businesses have something to sell,” Kiyosaki writes. Their job is to part you from your money; yours is to keep it. Kiyosaki suggests asking yourself whether any particular purchase will make you richer or poorer.
- Brides and beaus — Money plays an key role in any relationship. You must trust your partner, must reach an understanding about finances.
- Brothers-in-law — Here, Kiyosaki’s “B” theme is stretched to its limit. His point is that in order to protect your estate from family members you don’t intend to share it with, you need to plan for your death.
- Barristers — Finally, it’s important to protect yourself from legal difficulties.
Though Kiyosaki lists seven possible pitfalls, he offers little practical advice for coping with them. How does one go about paying as little tax as possible? What is the best way to approach estate planning?
Financial IQ #3: Budgeting Your Money
There are two ways to solve a budget crunch: decrease your spending or increase your income. Either will erase a budget deficit, but Kiyosaki believes (as I do) that in the long run, increasing income is a better solution.
Kiyosaki explains that it’s important to think of a budget surplus a fixed expense. If you decide to save 10% of your income, then make this ten percent a fixed item in your budget. Treat it just as you would any other bill. Pay yourself first. “You can tell a person’s future by looking at what they spend their time and money on,” writes Kiyosaki (channeling the voice of Rich Dad). “Time and money are very important assets. Spend them wisely.”
Kiyosaki notes that when things get rough, people tend to cut back rather than spend. But if they’d simply prioritize spending, they could actually improve the situation. Spend less on beer and pretzels, sure, but spend more on continued education and self-promotion.
Refuse to live below your means, Kiyosaki writes. Instead, increase your means.
Financial IQ #4: Leveraging Your Money
This is the longest and most frustrating chapter of the entire book. It represents the core of Kiyosaki’s financial philosophy, yet it’s not presented in a way that makes it relevant to average people like you and me.
Instead, Kiyosaki argues, one should use leverage to make low-risk investments, investments in which you, as the investor, have control. This sounds great, but he doesn’t provide any relevant examples. He discusses his recent purchase of a 300-unit, $17 million apartment complex in Tulsa, Oklahoma. “[This] is a good investment to use leverage with because I have control over the operations, and the operations…determine the value of the investment.”
But what if I don’t have $17 million? What if I only have $17,000? Or $1,700? How does the average person make leverage work for her? (This is one of the interview questions I submitted to Kiyosaki — I still haven’t received a reply.)
Financial IQ #5: Improving Your Financial Information
Warren Buffett is the most successful investor of all time, yet he never takes a gamble. Buffett (and his partner, Charlie Munger) conduct extensive research for every decision they make. Before they buy a company, they want to know everything about it. Obtaining this information allows them to invest with confidence.
By contrast, I’ve made some really dumb investments. I’ve purchased stocks on the hope that they would increase. These sorts of decisions are not based on information — they’re based on emotion.
In order to improve your financial information, it’s important to:
- Separate fact from opinion. Many gurus are happy to offer their opinions — “gold is going up!” — but it’s foolish to make financial decisions based on these. Base your decisions on facts.
- Verify information. Don’t trust just one source of information, but seek confirmation from other parties.
- Know the rules. If you don’t understand how an investment works, don’t make it. “Rules provide a valuable source of information about how the game of money is played,” Kiyosaki writes.
- Understand trends. Trends are historical facts. Smart investors can use trends to make informed decisions. However, it’s important to note that trends do not project to future facts — only to opinions about possible futures. Still, trends are valuable sources of financial information.
“Ultimately,” Kiyosaki writes, “it is not the asset that makes you rich. Information makes you rich.”
Developing Your Financial Genius
Though an overview of the five Financial IQs forms the bulk of this 200 page book, it’s actually the last fifty pages that hold the most value. It is in these three chapters that Kiyosaki discusses “the integrity of money” and explains how to develop your financial genius.
He offers interesting recommendations, such as the importance of producing personal financial statements. He writes about bringing your financial actions in line with your beliefs. He writes about the psychology of money, giving special attention to fear of failure. He writes about the power of financial environments. If you want to become richer and more successful, he says, it becomes critical that you find an environment that allows you to grow and develop.
Financial Integrity
I like the idea of Rich Dad’s Increase Your Financial IQ. The book fills a niche about which little has been written. It’s motivational. I love Kiyosaki’s Big Ideas. They’re a breath of fresh air, offering a perspective often missing in personal finance discussion. I also like that his writing always motivates me to action, pushing me to pursue my goals.
However — and this is a big however — I’m often frustrated by the specifics in his books. Increase Your Financial IQ is no exception. It’s not just that I disagree with him; I actually believe he’s wrong. Let’s look at an example.
Kiyosaki does not believe in diversification. He spends a lot of time criticizing financial experts who recommend a well-diversified portfolio of mutual funds. “The problem with that advice is most advisors don’t know if it will work over time,” he writes. “I want to ask the expert, ‘Will you guarantee that this financial strategy will work?'”
But then Kiyosaki admits that he cannot guarantee his own strategies. I’m puzzled. Why condemn the conventional wisdom for a weakness you admit your own methods possess? At least proponents of index funds have a long history of facts and trends to support their assertions. Isn’t this one of the very components of financial intelligence this book purportedly praises?
Related >> Are Index Funds the Best Investment?
Related >> An Introduction to Diversification
“The richest investor in the world, Warren Buffett, does not diversify,” Kiyosaki says. His implication is that you should not diversify either, but that’s completely counter to what Buffett believes. Buffett does not diversify because he’s a professional. His life work is investing. For 99% of all investors, Buffett recommends diversified index funds. (“Maybe more than 99%,” Buffet has said.) It’s disingenuous of Kiyosaki to pretend otherwise.
There are other problems of the same nature in Kiyosaki’s books. That doesn’t mean they don’t have value. They do. Many people (and I’m one of them) have found the Rich Dad series a powerful motivator. I just think it’s important to read these books — and all personal finance books, for that matter — with an active filter, questioning what you read, picking the parts that apply to your life and discarding the rest. To me, that’s real financial intelligence.
You can read other reviews of Increase Your Financial IQ at these sites:
- Blueprint for Financial Prosperity (Jim likes it because it deals with high-level concepts.)
- Zen Personal Finance (Justin likes the core of the book, though he feels it’s recycled material.)
- Million Dollar Journey (MDJ, too, thinks there’s both good and bad here)
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There are 73 comments to "Robert Kiyosaki: Increase your financial IQ".
Don’t forget me! I’ve also written a review on the book, and I too had mixed feelings. Kiyosaki is good at making one think like some of the wealthy, but he never explains “how” to do it.
Great review. The fact that it’s yet another Kiyosaki book almost made me dismissed it w/o a second thought, but the non-outright negative reviews from Jim and you made me think I should at least borrow it from the library to give it a go-over… from reading the reviews, it doesn’t seem like this particular book is Rich Dad, Poor Dad IV — I suppose that can be another reason to give the book a shot.
After traipsing through Rich Dad, Poor Dad, I’m not planning on reading any more Kiyosaki books for a long time. I think they’re dangerous for people that don’t know what they’re doing and buy into them too much, and I find the lack of detail frustrating.
I’m pretty sure I’ve got everything I need about the book from the summary you’ve given. Thanks.
I think you said it best, JD. People should read this book, and all other financial books, with an active filter, applying relevant sections to your situation and discarding the rest.
There are some good high level ideas, but also many contradictions and half truths. If Kiyosaki does one thing well, it is stir up controversy… just enough to sell a few more books and book more speaking engagements. 😉
Thanks for the mention. 🙂
“It is information, knowledge, wisdom, and know-how, a.k.a. financial intelligence, that makes one wealthy.”
In other words, he wants you to pay for the seminars he promotes! And buy more of his books, hoping that he’ll eventually give you some actual information on how to become wealthy, rather than just platitudes.
“The richest investor in the world, Warren Buffett, does not diversify,” Kiyosaki says.
Wait a minute. I’m not a financial genius or anything, but doesn’t Berkshire Hathaway invest in many different companies?
“The problem with the standard financial advice is that it’s bad advice. You’ve been told to work hard, save money, get out of debt, live below your means, and invest in a well-diversified portfolio of mutual funds.”
… I am not at all a RK “Groupie” but, I happen to live like this and write about this on my own blog; in my experience, it’s actually true!
JD-Great review. I haven’t read this book, but have read several by Kiyosaki. Personaly, I don’t plan on reading another.
I usually find them frustrating because he says so little. Some of the big ideas are great and inspiring. The challenge is that he provides no details to support them. And he also says things that are so off base. Some show his lack of real understanding. Some are just downright dangerous to the average investor.
B. Smith, I would suggest you keep reading RK’s books. See, this is what you have to understand. When people buy the “Rich Dad, Poor Dad” books, they think they’re going to get a step by step guide to become rich now. And that’s not what this does. RK is not going to tell much of how you can make money, because you can make money in many different ways. You can invest, you can open your own business, you can do whatever you want. People who think this book is going to provide something safe and guaranteed might as well expect Kiyosaki to do the thinking for them. Look, to put you into perspective, I am a student at University of Florida’s business school. The concepts Kiyosaki teaches in his books are the same things I’ve seen in all my business courses. I took an Entrepreneurship class, it’s REQUIRED for my major. And guess what? You think my professor gave me a step by step run down of how to build a business, which industry to choose, where to build it? Not at all. Why? Because there’s a lot of ways to make money, that’s why! My professor says that it’s all in the mindset. This is also what RK is TRYING to get everyone here to understand. The SECRET is that if you want to make money you’ve got to CHANGE THE WAY YOU THINK. My professor told our class one day the following: “Guys, entrepreneurs see opportunities EVERYWHERE. But these opportunities have a very narrow window. Entrepreneurs know this and don’t hesitate to jump on the ideas. Some of these opportunities lead to great success, but a lot of opportunities don’t. But Entrepreneurs aren’t afraid of failing. If they fail, they just get up and try again.” This is what Kiyosaki attempts to explain in his books. Everywhere you turn there’s a money making opportunity, but you’ve got to have the mindset to be able to identify such an opportunity, and you’ve got to have the mindset when you fail. He’s not scamming you, he’s not being vague because he doesn’t want you to know. His goal is to simply get you thinking like he does. He teaches you a bit of accounting and other stuff that you need to know, but YOU have to be the one to come up with the ways to make the money. His book is your tool. USE IT! Anyone who doesn’t take his stuff seriously is missing out on THE secret to becoming rich. It’s really simple, guys! I’ve been making money ever since I first read his book back in 2007, and yes, I have had moments when I’ve failed. But I just look for another way to make my money work for me.
Good Insight on Robert Kiyosaki and what he does. He does not tell others’ which business is going to succeed he tells smart ideas’ with wisdom will succeed. I’m currently reading Rich Dad Poor Dad it keeps me reading, registering in richdadnetwork, playing cash flow game, reading websites’ that informs about money(reuters.com). After reading Rich Dad Poor Dad I’m also planning to read Incorporate and Grow Rich by Robert Kiyosaki and Increase your financial IQ and other book of him. Definitely Robert Kiyosaki Rich Dad Poor Dad will make anyone rich if they follow what Robert Kiyosaki says. Definitely reading Robert Kiyosaki book is going to be turning point in my life. First time I’m writing down my dream with break down of goals’ and projects’, actions’ in richdadnetwork.com Dream planner section. It is good I recommend you to join richdadnetwork.com to grow further beyond in your life. Thank you for providing me an opportunity to write my views on Robert Kiyosaki. Bye
Thank you once again for your insight into RK books… you see, many people out their are missing the point. He (RK) cannot direct you on what to do: but rather he gives insight into the business world and he also teaches you how to think and act like an investors.
To me, this is a road map to success; their different investment one can do due to our personalities…and opportunities abound around us, all we need to do is to open our mind to ideas. this one require to success as an enterprenuer.
what R.K. is trying to achieve is for us to change our mindset and sees opportunities around us, that’s it. let me say this; even if 100 people are giving the same system to make wealth, i bet it with you that only 1% out of the 100% will be able to succeed in making use of the same system.
therefore, the best way is to give advice and to change the orientation of people, which (R.K) has done; and your job is to study and ask for advice on anything you intend to invest on from those in that line of dealings.
so, my advice is for you to continue reading R.K books. Read them according to how they were released, in other to have detailed information on investment.
Notice that all five of Kiyosaki’s “Financial IQ’s” contain the words, “money” or “financial.”
He pretends to challenge conventional wisdom but he absolutely promotes it, albeit in a different way, and uses it as leverage to sell books. Conventional wisdom is that money brings happiness and Kiyosaki’s advice is rooted in this misleading idea.
Financial success or any kind of success has nothing to do with money — it has to do with the degree to which an individual finds meaning and purpose in their life.
“I do nothing but go about persuading you all, old and young alike, not to take thought for your persons or your properties, but and chiefly to care about the greatest improvement of the soul. I tell you that virtue is not given by money, but that from virtue comes money and every other good of man, public as well as private. This is my teaching, and if this is the doctrine which corrupts the youth, I am a mischievous person.” ~ Socrates, quoted by Plato, ‘The Death of Socrates’
I think you are misinterpreting Roberts’s advice.
He can say Warren Buffett does not diversify, because Warren only invests in what he has created a system for finding good investments with. Nobody else has the system the Warren has developed. It only works for Warren and Warren never invests in something that is outside of this system which is based on his market knowledge.
By this definition, Robert also does not diversify. He only invests in what he understands and he only uses his proven system. That’s why he says, everyone needs to find their own system and once you find a system – focus on it and it alone.
I agree with Robert, and I disagree with investing in mutual funds as suggested by most financial advisers. The reason people invest in mutual funds is because they don’t know enough about any one industry or market to make a good decision. They don’t have a proven system to make their investment decisions with, and therefore all they can do is spread their money around and hope some of it turns out.
Robert has some of the best advice; you just have to understand what he is saying. His next play with commodities is also very important as the dollar is losing value very fast. Now is a good time to sell your mutual funds and buy gold and silver.
I believe that RK is light on the details because he doesn’t want to put his nest egg at risk. If he gave you specific how-to’s, then you went out and did them and lost a bunch of money, then came back to sue him–he could very well lose that case! Actually, it’d be more like a class action.
As much as I wish he’d “put his money where his mouth is” and give actual advice rather than platitudes, I suspect he doesn’t have the integrity or know-how to do so.
I don’t read Rich Dad books anymore–not even for free in the bookstore. He’s not a great investor. He’s a great marketer!
“This is measured by how much money you earn. If you make $100,000 a year, you have a higher Financial IQ than someone earning $30,000 a year.”
I think this is one of the most counter productive, and ignorant things I’ve read in regards to finance and managing your money. Sure, his financial IQ is an arbitrary term, and thus can have an arbitrary definition, but I think a better way to look at ones financial IQ is to look at what people do with the money they earn, not how much money they have.
I am absolutely sure there are people who make 35k a year I would feel have better “financial IQ’s” than people who pull in 85k.
I believe that it may be true that some guys with 35k a year have more theoretical knowledge than the guy with 85K but come on look at the numbers, if you cant pull it off into action than that knowledge is useless… would you recommend advice from a guy who is highly educated that makes only 100k a year or the guy that build his own company that makes 1,000K a year? Its a numbers game.
some people living in prospect cities can earn more money because of the more opportunities. so, a person with good financial Iq living in a poor country can do nothing.
I kind of agree with plonkee on the issue of RK. He’s always gives a few basic good ideas but they’re often surround by self-promotion, boasting, and misleading information. He promises great financial wealth but always leaves things just vague enough to entice readers to either buy more books or attend his seminars. He’s about the closest thing this industry has to a snake oil salesman.
Sure, anyone can glean some good ideas from these books, but why would you bother when there are such better books out there.
I have long felt much the same about Kiyosaki. I think the premise ( and reevaluating how we approach money) can be motivational, but that’s about it.
I have spent time at blogs and forums devoted to “Rich Dad” and much like happens with other “gurus” the fans come to resemble a cult around the personality of the guru. Everyone uses the code language and anything said/written by the leader is gospel. This goes for the extreme frugality gurus and well as the “money making” ones. With RK you end-up with a bunch of Casey Serins. People who think work is useless and all you need is one big deal to “leverage” to pay for your toys. Someone with no education ( except financial “boot camps”),work, or life experience ( unless Amway counts) armed with Rich Dad books and a sense of all the “cashflow quadrants” is now convinced they are ready to hunt down the plentiful million dollar apartment deals.
I can’t take any finance author seriously who doesn’t believe in diversification. Diversification is absolutely essential.
I have no familiarity with this guy’s schtick, so I appreciated this review.
The idea that the average person should do what Warren Buffett does strikes me as dangerously irresponsible advice. It’s like me saying that because the world’s greatest aeronautical engineer is able to build himself an amazing and superior experimental plane and pilot himself across the country that the rest of you should do the same.
Kiyosaki’s comment regarding a person earning 100K a year automatically having more Financial IQ than a person earning 30K a year is completely moronic. The person earning 30K could actually have a higher net worth because he/she was responsible with money and followed the fundamentals of finance. The person earning 100K may have 50K in credit card debt or lost a great deal of money in an investment portfolio by not diversifying.
I would have thought it was obvious that diversification is a crutch for a lack of specific knowledge. That doesn’t mean you shouldn’t diversify, it only means you shouldn’t feel you have to if you have the specific knowledge you need. And that’s what I thought he was saying.
Me? I don’t know what I’m doing yet, so I do diversification.
Also, the person earning $30k/year might be loving life, while the person working his butt off to earn six figures is hating it. I would far rather live below my means and earn less if it meant I could enjoy working days, rather than working constantly just to amass a fortune. What is the point of having money if not to enjoy it?
Phil,
Earning money is just part of the financial IQ that RK presents. Protecting it and budgeting it are other parts. So if the person earning 100K has 50K in debt, then this is a significant negative on his financial IQ. Thus, RK’s point still stands. Financial IQ is the big picture of things, and one’s ability to make money is certainly a part in improving this big picture.
Now, where you can disagree is that money isn’t everything. The person earning 100K may not be happy with his job, whereas the person earning 30K is doing social work, making the world a better place, and is very happy with his job. One can argue that financial happiness is just as important, if not moreso, than one’s net worth and the other aspects of financial IQ that RK presents.
Also, I *mostly* agree with RK on diversification. If all you do is invest in the average market, the most you can expect is average returns. Now, for many, this may be perfectly acceptable. But for some, they may want higher returns which simply cannot be achieved by being “average”.
Certainly, being non-diversified takes more work and knowledge (remember, one of RK’s aspects of financial IQ is knowledge). But if one is willing to do this work and learn this knowledge, he can certainly beat the market. For instance, in RK’s line of work, consider someone who invested in real estate in the beginning of this decade. Real estate was a superb investment, making huge gains, magnified even more through leverage. But by the beginning of 2006, it was obvious to anyone paying attention that the market became overheated. So a smart investor would have sold his real estate holdings at that time, locking in his gains, and avoiding the mess that became of the housing meltdown.
Timing the market? Yes. Impossible? Not for a smart and informed investor. This goes back to the discussion we had a few days ago over index investing. Many people believe the markets are not truly efficient, and thus it is possible for an active and informed investor to beat the market.
I thought Warren Buffett DOES, in fact, diversify. From links on this site to interviews with him, it says he owns stock in Coca-Cola, Gillette, owns some furnature companies, and recently purchased alot of stock of Wrigley (or Cadbury? I can’t remember.), etc.
To me, if he wasn’t diversified, he would only own stock in one company.
@Steven Fisher: “I would have thought it was obvious that diversification is a crutch for a lack of specific knowledge. That doesn’t mean you shouldn’t diversify, it only means you shouldn’t feel you have to if you have the specific knowledge you need. And that’s what I thought he was saying.”
To me, the point of diversification is to invest in asset classes with low correlation. This reduces the overall volatility of your portfolio.
You can have all the knowledge in the world about a particular investment but that investment could still fail. That is why diversification is absolutely essential.
Diversity does reduce volatility and, IMO, that’s always a good thing to reduce in your long term investments.
I don’t remember where I saw it, but I once saw a chart that compared the volatility of two funds and over time a fund that has alternating annually returns of +10% and -10% handily beat a fund that has alternating annually returns of +30% and -30%.
Kiyosaki’s biggest success is writing books full of vague feel-good tripe that doesn’t really say much.
Making more money is a blindingly obvious goal but not if it means you’re going to spend more which happens to far too many people (it happened to me too). Instead of chasing a higher salary and all the nonsense that that entails (longer hours, kissing butts, expensive extra degrees etc) learn to be happy with what you have and live within that.
oh and easy leverage is what got us into the current housing disaster.
First, I’d like to thank you for continually bringing new thoughts to the table. Just reading your daily posts keeps me motivated and on track. More importantly, it gives me fresh perspectives and keeps my own pursuit of wealth and happiness from “going stale”. A key point of failure for me is boredom. I think Kiyosaki’s main point is that it may not be what you have that counts so much (like information), but rather, it is having the knowledge and wisdom to know how to use the resources available to you.
The only person who shouldn’t diversify is one that can accurately predict the future. Otherwise you are taking on a lot more risk. Companies can and do fail- I’ve bought stock in some! However, barring a cataclysmic event I can’t see all 500 of the S&P 500 going under. Buying in multiple sectors also prevents you from doing stupid things like putting all your money in real estate in 2007, or .COM stocks in 1999 or the bubble du jour as it is the hot investment.
The down side to diversification is that you can’t make the stellar returns you could with a single great company. However, given that I can’t predict the future I think it’s a good tradeoff because that single great company could turn out to be the next Enron.
-Rick Francis
I’ve read three of his books and thought his cash flow quadrant was a worth while read, but I’ve come to the conclusion that Robert Kiyosaki is only into making money off his books and speaking engagements. He’s following the hot trends because that’s what sells. That’s not advice, that’s just marketing and sales designed to separate people from their hard-earned cash or worse – take their money AND send them down the road to big losses!
“He discusses his recent purchase of a 300-unit, $17 million apartment complex in Tulsa, Oklahoma. ‘[This] is a good investment to use leverage with because I have control over the operations, and the operations … determine the value of the investment.'”
This is a terrible example. (Or, actually, a good example of his poor advice.) He’s wrong about what “determines” the value of the investment.
The value of that investment, when for sale, is determined by perceived value of that property in that location. What if he borrowed $17 million to buy the property, then needed to sell it two years later – when he could only get $15 million or $11 million or even less? Many people are in exactly that situation now.
The value of the investment, when not for sale (that is, for as long as he holds on to it), is determined by income versus expenses. He has SOME control over the operations, but not total control (what if one of the tenants makes so much noise that it’s unlivable for dozens of others, or there’s a major flood on a top floor unit ruining several units below? What if Tulsa deteriorated into the crack capitol of the US?) Kiyosaki does NOT have complete control over the going rates for rent in Tulsa, nor can he keep a low vacancy rate without charging competitive rents.
This is the kind of shoddy advice that led many people to think they could buy a house or condo or apartment building at bubble prices and then charge whatever rent they needed to cover their expenses. Problem is, in many, many areas, the cost of servicing a mortgage is much higher than going rents … and now many people who leveraged (borrowed) to invest have to file for bankruptcy.
Kiyosaki’s books are an excellent lesson in opportunity cost. Sure, there’s SOME value in them, somewhere, if you really dig. But waste ten hours digging for something useful from one of his books, when I could be reading Bogle or David Allen or Socrates? No thanks. My time is worth more than that.
Kristi wrote: Kiyosaki’s books are an excellent lesson in opportunity cost. Sure, there’s SOME value in them, somewhere, if you really dig. But waste ten hours digging for something useful from one of his books, when I could be reading Bogle or David Allen or Socrates? No thanks. My time is worth more than that.
And that’s where your friendly neighborhood blogger comes to the rescue. I read (and summarize) the books so you don’t have to! 🙂
I always felt after reading any Kiyosaki book that “He knows how to make a product sell and he does it”. I do agree that some of his books are good but it never tells you how to become rich or sustain rich or what path to follow to become rich. He preaches to buy Stocks but he prefers investing in Mutual Funds.
I just feel that this new book in this series is just another product from him to make sure he takes away some of “OUR MONEY” to his bank account. I have not yet read this book honestly I don’t have any interest in reading his book now. I realized he just wants to sell and he does not want to help others as I first thought.
I don’t know how many here have traded in commodities. I have tried it and it is something real complicated than average stock buying. Whatever he says does not suit a common man. You should be pretty good in playing with your money to follow his advices.
I feel its better to read these books and try to learn to write one like him and become a best seller so that you can make money for yourself..
I think J.D. is on the way to become one!!! 🙂
I think that most Kiyosaki books and advice have their merit and I agree that when it comes to any form of financial advice you have to use your own inteligence and question everything. From your review I’m curious to see what the book has to offer and the fact that he says knowledge is one of the most important aspects to your financial literacy is encouraging.
Personally I’ve liked RK because he was one of my initial inspirations in this field because he made me think. If this book does the same then it will be worth the read.
Thanks for the review JD.
“I read (and summarize) the books so you don’t have to!”
Heh! And don’t think I don’t appreciate it!
Appreciatively,
Kristi
Hey J.D.,
Thanks for pointing out my review of this book. One of the interesting things Kiyosaki says in the book is that when he needs more money, he writes a book, because it gives him ongoing royalties (which means he’s not trading hours for dollars, but getting an ongoing stream of income).
The sort of sad thing about this admission is that his book reads as if was written to get a new stream of income started. It’s really all over the place in terms of structure and which ideas fit into which chapters. Doesn’t seem to have had a ton of time put into it.
I have no problem with most of his general ideas, although they’re hardly original. But I am consistently amazed at the career this guy has created as an author.
P.S. In reference to leverage, I think Kiyosaki is saying it’s OK to get a big bank loan if you’re going to invest in something that you control—you can’t control GE or its stock price, but you can control how well you run the rental property you own. You don’t need to buy a $17 million apartment building; a $170,000 double (or duplex or two-flat as they are called in some parts of the country) that you rent out is the same idea. (Although you could make the case that you can’t always control the rental market in whatever city you’re in.)
Thank you for saving me the time J.D.
I read Rich Dad, Poor Dad and found it mostly vague, and generally wrong. It’s not just Kiyosaki’s anti-diversification views that are dangerous- it’s his stance against higher education, his belief that it’s better know “a little bit about a lot of subjects” than in-depth understanding of any one area, etc. For anyone who believes in Kiyosaki, the following website busts the myth about this man:
http://www.johntreed.com/Kiyosaki.html
“Many people (and I’m one of them) have found the Rich Dad series a powerful motivator.”
I’ve been back and forth on Kiyosaki many times. Ultimately, I don’t really trust him, yet I have found value in some of his books.
I think the above quote is what it all comes down to with this guy. He sells you a little bit of inspiration and motivation , which isn’t a bad thing, but there is no ‘meat’ behind it.
I always liked Robert Kiyosaki’s books. I don’t believe 100% that financial IQ is determined just on how moch money you make. It should also be how you make it.
If 2 men both make $100,000 a year then according to that they would both have the same financial IQ. But if one man works 50 hours a week for it while another spends 2 hours a week to do that through a bussiness or investment they do not have the same financial IQ.
A few points to the Kiyosaki enthusiasts.
Diversification reduces risk, which ultimately increases returns.
There is no system developed by any mathemetician or anyone that perfectly predicts the market.
There is no mutual fund with a 20 year track record of beating the market year end and year out.
Investing in commodoties now when interest rates have hit their floor would be not very smart. Commodity prices have an inverse relationship to interest rates. Once rates start to rise, commodities will get cheaper.
Kiyosaki believes in leverage and doesnt teach his students, who are average folks, the pitfalls. I can point again to Casey Serin, who was used by his Rich Dad TV Program.
Therefor, Warren Buffett’s advice on investing is worth a heck of a lot. He actually got rich by investing. He says that 99% of people should diversify as much as possible, and that you should concentrate on learning about what earns you the majority of your income, which for most people is your job and not your investments.
Conversely, Kiyosaki is not an investor, he’s a book seller and a public speaker. If he writes a book about how to become rich by getting books on the best seller list and conning PBS into giving him airtime, then I’d be interested. But he has nothing to say about investing that is worth reading.
hasn’t work proving that diversification reduces risk won a nobel prize?
This guy is a mastermind of some monster pyramid scheme isn’t he?…no thanks
I have never read the guy, but he sounds like a charlatan and a snake oil salesman. IMHO, if a guy has a lot of books out about finance or any other subject, he didn’t do a good job presenting his information in the first book. At best it’s just rehashing the same topic with a slightly different spin on it.
While I am a big proponent of commodities, especially precious metals, I really haven’t heard too many financial industry advocates of commodities totally disregard the effectiveness of having mutual funds in one’s portfolio. They are all a part of a well diversified portfolio and as post #41 points out, a Nobel Prize was awarded for portfolio diversification work.
JD, thanks for the summary! I too have never lifted a RK book, but have heard much about them. I don’t think I will be convinced to part with my hard earned money to “learn” from a guy who makes his money selling his books, and not from his own investments…
Financial IQ is all good, but what about LIFE IQ? Being wealthy is ok, but wealth in Health, Family, and Life are equally, if not more important than just Financial IQ (Trust me on this one, I’m a high six figure income earner…and money is NOT the most important thing in the end…).
Diversification…Interesting points. This is my take. Learn something, and learn it VERY well. Sure, now that doesn’t sound like diversification, but you can diversify WITHin that specific knowledge. Like Buffet, for example, he may have invested in many different companies, but each of those companies “passed” a specific filter that he set in place before he’d invest in them wholly and completely. So, diversification within a niche, if you will. I love this saying, “Put all of your eggs in one basket, but watch that basket like a HAWK”!!!
Great article. I have been reading your RSS feed for some weeks now, but this article made me want to come on here and thank you.
I love these book summaries. Thank you so much.
On personal financial statements: I completely agree that these are very helpful. For the past few months, I’ve taken a snapshot of my financial situation on the 5th of each month, listing my checking, savings, and debt balances in an Excel spreadsheet. I created a formula that shows the percentage change of my debt-to-assets ratio from month to month. Slowly, as my spending and saving habits improve, I’ve seen the positive percentage change grow– it does wonders for my sense of where I’m going and the progress I’m making.
RK says plenty that is worth listening to … he’s the first person that I recall reading that taught me the difference b/w an Asset and a Liability (if you don’t know, buy Rich Dad, Poor Dad) .. if that’s not worth $24 what is???
Now, the fact that his Net Worth was approx. $1 Mill. before he wrote the book and $26 Mill. after … well, good luck to him. 🙂
I appreciate RK’s opinions, and this book sounds like it has a little more substance than a few of his others (though it seems like every one of his books could be easily summarized in about one tenth of the space).
I do think his advice is dangerous for many because – let’s face it – America is largely made up of those with ZERO Financial IQ and no desire/ability to increase it. Which is why, as Buffet understands, most of us are best off with diversified index funds.
FirstI agree with his thoughts about diversification, though. The vast majority of people who go from nothing to great wealth do it by NOT diversifying. If you start a business, for instance, you are going to put 110% of your effort, resources, time, and money into that venture in order to build it and grow it. And if it doesn’t fail, your returns will far exceed that of a diversified portfolio of index funds. Most wealth-creaters never diversify while building their wealth – only after they have it, in order to protect it (if ever).
Second: Regarding leverage, even a small-time person CAN do it. I’m doing it; I just bought a rental property for $130,000 and borrowed $104,000 to do it (I could have borrowed less, but I happened to have 20% to put down). I’m not advocating being a landlord to everyone, but you certainly don’t need millions to take advantage of leverage; however it’s easiest and most accessible to regular folks via real estate since there’s an active market for that (I for one am not comfortable buying stocks or trading foreign currencies on margin, which is another widely accessible way to use leverage).
Finally, I would like to defend RK in general against not giving specifics on how to get wealthy. He CAN’T because his whole mantra is to RAISE YOUR OWN FINANCIAL IQ. Figure out your values and goals, your strengths and weaknesses, what financial resources you have, opportunities in your area, what the market is doing at whatever time you happen to be reading the book. These things are different for every reader, so it’s not like he can possibly lay out a step by step plan to wealth.
I think Robert Kiyosaki’s RICH DAD,POOR DAD book can be a great motivator for someone that has absolutely no previous financial experience other than debt. HOWEVER, it should be used as a steping stone, not a map!
When I turned 17, I good friend that lived the “Rich Dad” lifestyle gave me RDPD as a gift and that is perhaps the single greatest book that opened my eyes to living a life without debt. My parents are the embodiment of the “Poor Dad” lifestyle, and had I not read this book, I most likely would be in debt up to my eyeballs like they are.
I usually read RK when I want some motivation, but I think that the “Millionaire Mind” is a practical book for the masses. I was forunate to read RK’s books as I was starting to earn an income and that was able to affect my money habits at an earlier age. However, I cringe when I hear close friends of mine that are in their 40’s-50’s start rumbling off many of his catch phrases because I know that this is the extent of their financial knowledge and following his advice hook, line and sinker will probably have devastating consequences.
I think that Robert Kiyosaki lacks credibility. He reminds me of a guy that wears a 10-gal. hat but doesn’t own cattle.
Paul
Kiyosaki’s bright side is that he gets people talking about this stuff. His advice is pretty out there and not for most folks but he’s a firestarter, and sometimes that’s the only way people pay attention, so there’s something to be said about that.
Does he annoy the hell out of me? Hell yeah he does. I wish I could sell millions of books filled with my soapbox rantings.
@Meg – I’m glad to see someone who understands Roberts reasoning behind his ideas.
After further reading this post, I have decided to post a rebuttal in defense of Robert on my blog.
http://www.pennyjobs.com//pp/public/Articles.aspx?aid=76
@ JD Thanks for taking a crack at this review. The one thing that stands out to me is that after three reads you still don’t feel comfortable with the material and presentation. That should tell you something and I appreciate you mentioning it.
@ 7Million7years I have asked in various forums if RK had any proof of his wealth prior to sales of his book (i.e. did he really practice what he preached). There is none other than what he himself has said, and I don’t feel he’s exactly straight about his story. So I would like to know where you got the information he was a millionaire prior to the sales of his book.
Based on the above review, this is another “kinda sorta says something good in there but I’m not really sure what the hell it might be” book. Pretty much what I would tend to expect from the author.
GRS,
On Robert Kiyosaki’s not supporting mutual funds and that type of diversication, its all about financial education and where the individual wants to be. Mutual funds are a good idea for a person that does not want to invest in an education. It is Mr. Kiyosaki’s belief that the financial advisors that cater to the mass’s, do just that. I see it as their services and products are based on what suits large volumes of people and makes training a large number of advisers simple. They make their money on the volume of clients and money not the amount of money that they make for an individual. Thats just big business and they serve a niche, sadly a very large one.
It seemed very simple for me to understand that concept. I am just starting my financial education and my main resource for investing is my 401k. This is a great tool or anyone. But once I have learned enough about stock and other personal investments I would consider myself foolish to invest more that the percentage matched by my plan and even then I will attempt to out perform that as I grow.
It takes a commitment in anyones life to be that proactive. I have a full time job, a blog/sprouting online business, three kids and I am a single parent. My approach is to start with balance and make time for each area of my life in order of importance and thats the least I can do.
One author that agrees with is is Phil Town. “Rule number one” being a great follow up to the “Rich dad, Poor Dad” series.
I would suggest that you ask the person that administors your mutual fund or 401k,to see their financial statement and compare that to Phil Town’s or Robert Kiyosaki’s. I would bet that their net worth is closer to yours.
I’d like to remind everyone that RK claimed to have real estate investments before, but when public records were searched, only his personal house came up.
There remains ZERO evidence RK has ever invested in real estate.
I very much doubt his latest claim of owning a multi-million dollar apartment building (it would be in public records)
Maybe he has a few shares of a REIT which invests in multi-million dollar apartment buildings.
“Millionaire Next Door” is a better case study of how actual millionaires build their fortune.
True small business millionaires build their business over decades, ruthlessly controlling consumption spending – small houses, used domestic cars, no fancy clothes – no Rolex like RK brags about.
@ – Bill Unfortunately, that’s a little naive. He would invest ‘behind’ companies/trusts … for example, if I gave you my real name you would find ZERO assets … yet if you googled that and any of my (now sold) company names you would see a large number of zero’s in a few stock exchange announcements (although, you would still see nothing of my current business / real-estate / stock /cash portfolio) …
… it’s called Estate Planning. The only time you DON’T do it, is if you are poor and intend to remain that way 🙂
I am not necessarily a Kiyosaki fan, but I doubt whether he would outright lie (he may ‘stretch’ the truth for effect, but would soon be caught out if he lied to the extent that you claim). I expect that the RK ‘truth’ is somewhere b/w where he claims and where you claim.
Also, I am living ‘proof’ that it doesn’t take decades (it took me 7 years … the prior 10 years were ‘wasted’ in terms of wealth-building).
@ Getagrip – One of the reasons why I blog, is that I wanted to be one of the first who actually made their money BEFORE writing (a blog / book). I read in one of RK’s earliest books (I’ll have to look for the reference) that he was earning ‘passively’ $100k per year when he ‘retired’ to write RdPd. In those days 10% was a reasonable interest rate, so that multiplies up to about $1,000,000. His book sales ‘upped’ that to about $26 Mill. (plenty to invest in real-estate … but, after the book, not before!). Now $1M then is about $1.5M now … peanuts on the true ‘wealth’ scale.
@ Meg – you can write my blog from now on(better yet apply to my 7 Millionaires … In training! ‘experiment’ @ 7m7y.com)!! You’re EXACTLY who I’m looking for to prove that (almost) anybody can replicate my financial success. Takes time, dedication and focus … but, doesn’t everything worth chasing?
Thanks for a great review on a not so great book.
BTW, RK and his wife are currently preoccupied with a bitter divorce with the co-author of RDPD:
http://www.azcentral.com/news/articles/2008/06/02/20080602biz-richdad0602.html
I read Rich Poor Dad and I liked it, but I only take out of any book the parts that I can apply in my own life. To me, the most important concept that a person can get is that we go through three basic stages as relates to money. This is an oversimplification, but the first stage is the learning stage of education. The second stage is the money earning stage where you earn, save and invest in what you understand, on your own thinking. In all your getting, get understanding. All along the way, as far as the money part of your life is concerned you should plan on having your money work for you so that you are not dependent of others for your support in your retirement years. Detail on this need not be given because if you have the concept in mind and the desire, you will figure it out. Take out of the books what applies to you and forget the rest. SIBKISS
A word on diversification:
No, diversification is not a hoax or a scam, but it is a cookie-cutter method for protection against investor ignorance. Warren Buffett and Kiyosaki do not diversify because as you said yourself:
“Buffett (and his partner, Charlie Munger) conduct extensive research for every decision they make. Before they buy a company, they want to know everything about it. Obtaining this information allows them to invest with confidence.”
If you are investing with confidence, why would you need to diversify? Is it better to invest in 50 well diversified stocks or 5 highly researched companies within your circle of confidence? If you still think diversification is hedging your risk in that scenario, then yes index funds are the better bet because they won’t allow you to shoot yourself in the foot.
Diversification, diversification, diversifation…Most investors do even know effective parameters of this concept, so how can they do it effectively? Diversification, in theory, is meant to reduce your systemic risk by limiting your exposure to companies, markets, and economic variables. However, the benefits of diversification become exponentially diminished beyond 18 equities.
With this in mind, do you still think mutual funds are a good investment? What are the odds that the fund manager has thoroughly researched all of the stocks within that fund to the level of scrutiny that Mr. Buffett requires for his investments (keep in mind some of these funds have over 1000 equities!)?
This is why nobody gets rich off of mutual funds. Its a mediocre investment consisting of equities that been researched half-assed by a fund mangager following the institutional imperative. Managers like Stephen Lynch are a dime a dozen, he not would research the companies thoroughly, he would buy their services as a customer to experience them for himself (His success with LaQuinta was due to this)!
It is true that the best way to be wealthy is to have an excellent financial intelligence and use controlled leverage. The problem with those in the E or S quadrant is that they suddenly jump over the I quadrant thinking they are already “Investors”. However, as Robert noted, it is by increasing your financial IQ and going to the B quadrant first that you become a real I quadrant investor.
Thanks for sharing.. this is a great blog
Kiyosaki keeps things at the introductory level to motivate you to take the next action step to figure out “how” to make it happen. I do not recommend reading more than a couple titles. Don’t be foolish like me and purchase the entire series looking for specific advice.
Every investment is a gamble and everyone has an opinion on what strategy to use. You’ll only know if you were right at the end of the day when it’s too late. Tough I know, but that’s life.
About diversification, I bet Kiyosaki would fall into the category of 99% of the investors. His professional is writing and speaking. He does diversify. He owns more than one property and more than one stock. That equals diversification in my opinion. It is just a matter of what level you diversify. Do you invest in 5 investments or 5,000 investments? You have to find the right balance for your situation.
It’s so much easier said than done.
I am an owner of a real estate agency in Romania. Improving my IQ Financial helped me to get out of the employees quadrant in the business owners. Thank Kiyosaki, now you have a new friend in Timisoara, Romania.
But what if I don’t have $17 million? What if I only have $17,000? Or $1,700? How does the average person make leverage work for her? (This is one of the interview questions I submitted to Kiyosaki – I still haven’t received a reply.)
I think if you dont have money to leverage you should go back to step #1. This advice is for investor. If you have no money, then you need to earn more– then leverage.
I have taken the time to read the majority of these comments. Thank you for your frankness.
I do not think that Robert Kiyosaki’s books are meant to give you the answers to successful investing.
I agree with another comment regarding individuals who sincerely seek to be successful investors, stick to their subject matter expertise, maybe deviate from your area of expertise would be better than the “do not diversify” quote. How in the world is an author suppose to know what that is for every reader? Robert does stress that educating yourself in what you are investing in is crucial to success. I don’t think anyone would refute that.
The common goal in all of the books, even the one he co-authored with Don Trump is to help the reader find the answer within themselves.
For those reasons, the books were invaluable if you are honest with yourself.
C
“I just think it’s important to read these books – and all personal finance books, for that matter – with an ACTIVE FILTER”
I agree to this 100%. Obviously different circumstances, different perspectives comes from different people. So don’t expect that we could apply one person views or actions will apply to us. NO PERSON IS THE SAME.
lastly, education(and i mean FINANCIAL EDUCATION) can be acquired in so many ways, we have internet and you have the common sense to choose which once are reliable and which one’s are not. Seminars, there are some that are free, some would cost but it is ALWAYS UP TO YOU if your going to risk money to learn or not. For me, I’d rather risk on something i have researched on first, than not doing anything at all. (just like the author ^^^ said about what he did with his stocks.)
Quote:
“The richest investor in the world, Warren Buffett, does not diversify,” Kiyosaki says. His implication is that you should not diversify either, but that’s completely counter to what Buffett believes. Buffett does not diversify because he’s a professional. His life work is investing. For 99% of all investors, Buffett recommends diversified index funds. (“Maybe more than 99%,” Buffet has said.) It’s disingenuous of Kiyosaki to pretend otherwise.
End quote
I can understand the authors point that the Rich Dad Poor Dad author never seems to go into specifics but here where it comes to how to invest I think Kysoci is right; mutual funds are the lazy way to get somewhat taken care of.
Warren Buffet and his mentor also stated its better to investigate and invest directly.
Saying that 99% (that number seems to come up allot lately in the last 4 years) can or will never understand the level of investing and professionalism it takes to invest like Buffet is truly hogwash.
I read these books and took finance classes and can tell you through trial and error I got real results.
I think it is up to the individual to find there spot on how to invest, not be told exactly what to do.
I Love Roberts books, especially Cash Flow quadrant. The first book I ever read other than the bible. I thing people should not just read us books, they should study is books. Great job Robert.. The most high bless you…
This book is so great, it really knocks sense within me. Excellent stuff.
I read one of Kiyosaki’s books and laughed all the way through it. It was pathetic. Mostly nonsense.
Good review. In regards to kiyosaki criticizing other “financial experts”, He bashes them not To make it personal, but believes that its better for you to trust yourself and make your own decisions than to put your faith in someone else who cannot guarantee their financial strategy. This way you learn from your own mistakes. The only mistake you learn by trusting someone else is that, you trusted someone else. He’s urging you to think more for yourself to build your own financial IQ while warning you that it may not always work out. when life pushes you around, push back. Everyone has their own financial strategies but it’s the ones who find success through their own thinking and strategies that separate them from the rest.