By Dr. James M. Dahle, WCI Founder

The online personal finance community can be pretty critical of Robert Kiyosaki the author of the Rich Dad, Poor Dad book series. I've been critical myself. Employees who invest primarily in static asset allocations of low-cost, broadly diversified index mutual funds tend to be especially critical while entrepreneurs and real estate investors tend to be less critical.


Robert Kiyosaki's Rich Dad, Poor Dad Criticism

The main criticisms of Rich Dad, Poor Dad that I hear are:

  • Kiyosaki is probably a liar (there likely never was a rich dad)
  • Rich Dad, Poor Dad gives no concrete advice, just a collection of cliches about money
  • Kiyosaki is just running a cult of personality

It's really not all that different from other well-known financial personalities like Suze Orman or Dave Ramsey, although I don't recall anyone ever calling either of them liars. But here's the way I look at all of them as well as every book, blog post, or podcast I ever encounter:

Take what you find useful and leave the rest.

Seriously. If you're looking for some guru who always gets everything right and with whom you will agree 100% on every controversial issue in the financial world, you are bound to be disappointed. Just take what you find useful from every source (including this one) and incorporate it into your own personal financial philosophy.

In this post, I'll discuss what I find useful in Rich Dad, Poor Dad. I bet some of my younger readers have not even heard of this book first published in the early 1990s.


The Book Rich Dad, Poor Dad Increases Interest in Finances

My mom read Rich Dad, Poor Dad. My mom. I think I might have gotten her to read The CoffeeHouse Investor once. But that's it for financial books. She actually picked this one up on her own, read it, and sent a summary out to her kids. There might be lots of bad ideas in the book (don't bother going to college for instance). The book might be really short on specifics. But I truly believe that it often leads people to read other, more specific/accurate books. In that sense, it's a win.


Rich Dad, Poor Dad book

Robert Kiyosaki Is a Marketing Genius

Kiyosaki has sold a lot of books and other stuff. So even if you aren't learning a thing from what he is selling, there is a lot to learn from how he is selling it. Dave Ramsey is similar. That dude can sell. He's got people volunteering to sell his stuff for him. He has people lining up to pay to come listen to him sell stuff to them.

It's brilliant. Kind of like the annual boat show. People buy a ticket to come do what they can do in the boat dealerships for free. That takes serious marketing skill. We all have something to sell and we can better learn how to do that by observing Kiyosaki. I mean, just look at the book's subtitle:

What the rich teach their kids about money– that the poor and middle class do not.

That is clickbait if I ever have ever seen it. That was clickbait before there was clickbait. A very impressive turn of phrase. Some people with marketing degrees never come up with a line that good.


Assets Make Money – A Key Concept of Rich Dad, Poor Dad

Perhaps the most important concept in Rich Dad, Poor Dad is that assets make money and liabilities cost money. It's not a perfect, absolute statement. But it's generally true. A car is generally not an asset, unless you're an Uber driver. I mean, it decreases in value, you have to pay to insure it, gas it, maintain it, and repair it.

I've been telling graduating medical students this for a decade–a house is not an awesome investment. It just isn't. Is it an investment? Sure. It may appreciate and it pays “dividends” of saved rent. But it's often not an awesome investment, especially when you don't hold on to it long enough for appreciation to make up for the heavy transaction costs.

On the other hand, stocks, bonds, mutual funds, investment properties, and other small businesses are assets. They have a positive expected return. They usually have positive cash flow. I love Kiyosaki's recommendation to FIRST buy the assets and then buy the liabilities. Now I'm not quite as big of a fan of leveraging up my life as he is — he suggests leveraging up the asset (investment property) and then using the cash flow to buy the liability (car) on credit, but I do like the idea of getting rich first before buying the outward signs of being rich.


The Cash Flow Quadrant by Robert Kiyosaki 

This was a concept that proved so popular Kiyosaki wrote an entire book just on this. The idea was that income comes from four different places, or quadrants:

  • E – Employee – You have a job
  • S – Self-employed – You own a job
  • C – Corporation – You own a business and others work for you
  • I  – Investor – Money works for you

Basically, each quadrant is better than the last because you pay less in taxes and earn more relative to the amount of work you put in. He goes all kinds of places with this quadrant in the follow-up book that doesn't necessarily make a lot of sense, but there is a fair amount of truth in the basic concepts.

It IS a lot easier to take deductions when you are self-employed than when you are an employee. The best tax deductions are business deductions. They're better than itemized deductions because you can take them all and still take the standardized deduction. They're better than above-the-line deductions because you don't have to pay payroll taxes on them. They're even better than the fancy QBI Deduction, which has all kinds of limitations and even then is only 20% of QBI. Business expenses just reduce your business income dollar for dollar.

Investment income IS taxed at a preferred rate. You are far better off tax-wise getting all of your living income from qualified dividends, long-term capital gains, and rent sheltered by depreciation than you are working for it. Not only do you enjoy the lower tax brackets (0% for some) but you also don't have to pay any payroll taxes on that money.

It IS a lot better to have others and your money working for you. When you hire an employee (or contractor), you (hopefully) never pay them exactly what they are really bringing in for you. You can't do that and have a profitable business. Some portion of their effort and work flows to you as profit.

It is the same when you own a real estate property. If all of the rent, appreciation, and tax breaks were paid out in expenses, there would be no purpose to owning the thing, at least in the long run.

When you own a total stock market index fund, there are literally millions of Americans who wake up each day and go to work FOR YOU. Some tiny percentage of their labor flows into your pocket because you own the business they are working for. Get enough of those tiny little employees and you never have to work a day in your life. That's capitalism.


Rich Dad, Poor Dad Encourages You to Be an Entrepreneur

A lesson that most folks take away from the book is that being an entrepreneur is generally a good thing. I think that's a wonderful lesson. Now, if you take it to an extreme (as Kiyosaki at times advocates) that will get you into trouble. But entrepreneurship done well has made a lot of people a lot of money, reduced a lot of burnout, and provided financial freedom to many.

That doesn't mean everyone has what it takes to be an entrepreneur. That doesn't mean everyone can become more wealthy as an entrepreneur than simply working hard in their chosen profession/job, carving out a big chunk of their earnings, and investing it wisely. But it is very much a viable path to a fulfilled, wealthy life.

One of the biggest criticisms of the book is that there are no specifics. Well, that's kind of how entrepreneurship is. You can't do it exactly as the last person did. It won't work again. You have to chart your own path. It isn't like the medical pipeline where you study organic chemistry, become the president of the pre-med club, study for 3 weeks for Step 1, do your medicine clerkship before your pediatrics clerkship, finish residency, pursue a fellowship, become a clinical instructor, then an assistant professor, then an associate professor, and then a full tenured professor. You can go from organic chemistry to CEO in 3 months. Or you can muddle around in a “medicine clerkship” for years before breaking out.

=”2″ link=”t9IV6″ via=”yes” ]That's kind of how entrepreneurship is. You can't do it exactly as the last person did. It won't work again. You have to chart your own path.

I am far less critical of this non-specific “be an entrepreneur” kind of advice in the book now that I am a successful entrepreneur. I'm actually amazed there are entrepreneur classes in business school. I just don't think most of what makes a good entrepreneur can be taught. I think the most successful ones pursued an idea/problem/solution and then learned the business skills required to carry it out rather than learned the business skills and then went looking for the great idea.


Abundance and Scarcity Mindsets

Another concept in Kiyosaki's writings is the idea of avoiding the “Scarcity Mindset.” The Scarcity Mindset is the idea that the pie is of a limited size. It cannot be grown. All that can happen is that you can get a bigger chunk of it. However, to do so, you must take it from someone else. So you end up being suspicious of others, focusing too much on your expenses instead of your income, and in the end, become miserly and poor.

The opposite is the Abundance Mindset, where you realize the pie can grow. Everyone can become more wealthy and there are no limits on your income. Part of this is just being optimistic, but I've run into enough people with a Scarcity Mindset that I think warnings about it are appropriate.

Imagine a FIRE blogger saving 90% of their income for ten years to hit the “Retire Button” to then live another 60 years washing Ziploc bags and reusing paper towels. At a certain point, it's better to just find paid work you actually like and work a few more years. As Seth Godin said,

Instead of wondering when your next vacation is, maybe you should set up a life you don't need to escape from.


Rich Dad, Poor Dad Claims Real Estate as a Good Investment

Another concept most people take from the writings of Kiyosaki is that real estate is a good investment. The index fund crowd poo-poos this idea entirely too much. I have simply met too many people who have become financially independent investing primarily in direct (or indirect) real estate to deny it is a valid way to invest and become wealthy.

That doesn't mean index funds are not good investments. That doesn't mean that there is not a lot of risk in real estate investing. It certainly doesn't mean there are not aspects of real estate investing that are like having a second job as a realtor, developer, landlord, handyman etc. That's all true. But it is still an asset class worthy of inclusion in a portfolio in some form and in some amount.


Is Rich Dad Poor, Dad a Good Book Worth Reading?

The bottom line is that in most financial books and blogs there are some pearls of wisdom. Sift through the rubbish, find them, and incorporate them into your life.

What do you think? Have you read Rich Dad, Poor Dad? What did you think of it? Comment below!

[This updated post was originally published in 2019.]