Rich Dad / Robert Kiyosaki Blog

May 12, 2009

Kiyosaki’s Not So Bad: Reply To John T. Reed

Filed under: J T Reed — Tags: — ~ @ 6:00 am
Kiyosaki’s Not So Bad: Reply To John T. Reed
Ron Fioro
SpicePuppy Staff Writer
Posted 5/28/2007
 
Robert Kiyosaki is best known for his #1 New York Times bestseller Rich Dad, Poor Dad, which, together with the 17 other books in the Rich Dad series, has sold over 26 million copies. Through his books, educational games, audio cassettes, newsletter, motivational talks, and Yahoo Finance column, he argues that traditional financial advice is obsolete. Instead of telling people to get a good job, work hard, save money, get out of debt, and invest for the long term, Kiyosaki teaches the concept of escaping from the rat race with passive income as a business owner or investor.
But not everyone is a fan of Rich Dad, Poor Dad. Author and real estate investor John T. Reed has earned quite a reputation for his scathing review of the book. In fact, a Google search for “Robert Kiyosaki” currently shows John T. Reed’s analysis of Rich Dad, Poor Dad as the second organic search result, right ahead of Kiyosaki’s own site!
Before we go any further, let me say that what follows will be of no interest to you if you haven’t first read both Rich Dad, Poor Dad (available at your local library) and John Reed’s review of it (available via the link above). Read the book before you read the review, and approach both with an open mind. Then come back here and read this.
For some reason, it’s always easier to believe the negative than the positive. Many people read Rich Dad, Poor Dad and say they’ve experienced a major paradigm shift, that they’ve totally changed the way they think about money. Then they read a negative review and decide that the book is hogwash. Did they suddenly forget the new paradigm they believed in so deeply a few hours ago? (Yes, Mr. Reed’s review is that long.) Maybe rather than just assuming that Reed’s opinion must be valid because it’s negative (and yes, very thorough), it’s best to think objectively and decide for yourself.
Don’t get me wrong, I don’t agree with everything Kiyosaki says, and I have some major issues with him. But I think that Reed’s review is overly harsh and nitpicks on many small details, while ignoring what the book does well.
Was there really a Rich Dad?
Robert Kiyosaki grew up with two dads. His biological father, “Poor Dad,” struggled financially all his life. His friend’s father, “Rich Dad,” went on to become one of the richest men in Hawaii. Rich Dad, Poor Dad is about what Kiyosaki learned from their contrasting points of view about money.
One of the biggest topics of controversy surrounding this book is whether Rich Dad actually existed. Reed says he leans to believing that he was totally made up, citing that Kiyosaki never named Rich Dad, that Rich Dad’s mix of businesses seems unlikely, and that the Honolulu Star-Bulletin was unable to determine the identity of Rich Dad, in spite of the clues given in the book that should greatly narrow down the list of suspects.
Why would Kiyosaki not name Rich Dad? Could it be for privacy reasons? In fact, in Kiyosaki’s latest book co-authored with Donald Trump et al., Why We Want You To Be Rich, he says his reason for not naming Rich Dad is because the family does not want to be named. It’s probably the same reason Reed does not name his wife and three sons on his website, which is perfectly understandable.
Regarding Rich Dad’s business mix of convenience stores, restaurants, and a construction company, Reed claims it would be odd for someone to own both convenience stores and a construction company, and cannot imagine a restaurateur owning a construction company due to the management-intensive nature of both restaurants and construction. Well, I know someone who was a single mother of three small children, and a full-time college student. This already tough load didn’t stop her from also being a financial planner while owning a Century 21 branch and three restaurants. Is this type of thing unusual? Yes. But it can happen.
If the Honolulu Star-Bulletin went looking for Rich Dad exactly as he’s described in the book, then of course they weren’t able to find him. Rich Dad, Poor Dad is based on a true story, but obviously some details have been changed for storytelling purposes. Do you really believe that a nine year old melted down lead and cast it into counterfeit nickels? Do you really believe that every quote in the book from 1956 is repeated verbatim? The copyright page of his book Rich Kid, Poor Kid says “Although based on a true story, certain events in this book have been fictionalized for educational content and impact.” I suppose this disclaimer should have been in Rich Dad, Poor Dad as well, although I thought it went without saying.
Obviously, Kiyosaki’s childhood friend may not have been named Mike, he may not have lived literally next door to Kiyosaki, and Rich Dad may not have been involved in the exact mix of businesses given in the book. Rumor has it that Rich Dad may have been Richard Kimi, the deceased founder of the Sand & Seaside Hotel chain.
Was Richard Kimi in fact Rich Dad? I don’t know. Does it matter? No. The identity of Rich Dad, or whether he existed at all, does not affect the lessons of the book. However, if Rich Dad was made up, then Kiyosaki should not have said the book was based on a true story; that would be too big a detail to fictionalize. But I said “if.” I choose to give Kiyosaki the benefit of the doubt.
Nitpicking
Reed’s analysis consists mainly of taking major issue with many perfectly fine comments that Kiyosaki made. For example:
Kiyosaki: Says the rich get richer.
Reed: Says that sometimes they get poorer.
Me: Kiyosaki meant that in general, the rich get richer. He doesn’t mean that every single rich person is always getting richer without exception. If I said that birds can fly, would you shove a penguin in my face?
Kiyosaki: Says it’s not how much money you make, it’s how much money you keep.
Reed: Says the more you make, the more you keep.
Me: Someone who makes $99,000 in dividends and capital gains will usually keep more than someone who makes $100,000 in wages.
Kiyosaki: Says one of the main reasons net worth is not accurate is simply because the moment you begin selling your assets, you are taxed for any gains.
Reed: Says that about the only asset you would sell at a gain would be real estate, and all other assets like cars, golf clubs, and furniture would sell at a loss for tax purposes.
Me: What about stocks, bonds, and mutual funds? Don’t those often sell at a gain? Even if someone’s net worth is mostly in real estate, sale of rental properties can result in significant taxes in the absence of a Section 1031 tax-free exchange. And who includes golf clubs and furniture in their net worth?
Kiyosaki: Says he keeps his holdings private to avoid lawsuits; that if you have money, you get sued.
Reed: Says that on the one hand, Kiyosaki is very high profile about his wealth, yet on the other hand, he won’t disclose any details because he doesn’t want people to know he has money.
Me: He didn’t say he doesn’t want people to know he has money. He said that because he has money, he’s a target for lawsuits, and that he has better protection from lawsuits if people don’t know exactly what he owns.
Kiyosaki: Says he was able to retire at 47.
Reed: Asks “so why didn’t he?” and says he’s still hustling his butt off to sell stuff.
Me: He’s saying he “was able” to retire in the same way someone would say that the Allies “were able” to defeat Hitler; i.e., they could and did. He came out of retirement to spread his message, but marketing his products hardly seems like a rat race job to me.
Kiyosaki: Says prices go up because of greed and fear caused by ignorance.
Reed: Says anyone who is reasonably well read knows that prices are determined by supply and demand.
Me: Is Kiyosaki’s statement incompatible with Reed’s? Can’t greed and fear affect demand?
Kiyosaki: Says most people work all their lives paying for a home they will never own.
Reed: Says their equity increases with each payment, that many people pay off their mortgage in full before they die, and almost all thoroughly enjoy their home both during and after the mortgage.
Me: Equity does not increase with interest-only or negative amortization payments, many young people take out home equity loans, many elderly people use reverse mortgages, and only a small percentage of the people I know own their home outright. The fact that someone enjoys their home does not mean they’re not paying for it.
Kiyosaki: Says most people working for a paycheck are making the owners richer.
Reed: Says that’s irrelevant, that you should choose what you do according to how it relates to your goals, and not resent others benefitting from your efforts.
Me: Kiyosaki meant that working for a paycheck benefits the owners more than the employee. Also, many people like to have some control over who benefits from their efforts (think socially responsible mutual funds).
Kiyosaki: Says you work for the bank, in that after taxes your next largest expense is usually your mortgage and credit card debt.
Reed: Says that’s irrelevant, that you should use mortgage and credit card financing whenever they will help you achieve your goals, and resenting bank profits is childish.
Me: Kiyosaki’s point is that most people spend a lot of money servicing their debt, not that you should never use it.
Kiyosaki: Says the rich do not play by the same rules.
Reed: Says yes they do, that this is sour grapes thinking used by less successful people.
Me: Kiyosaki gives a very clear example early in the book. When a corporation announces a downsizing, people get laid off, families are hurt, and unemployment goes up. Meanwhile, since the market likes it when a company reduces its labor costs, the shareholders usually get richer.
Kiyosaki: Says he minimizes his income because he doesn’t want to pay it to the government.
Reed: Says that’s idiotic, that you’re always better off with more income as long as the tax rate is less than 100%.
Me: Kiyosaki meant that he minimizes his realized (taxable) income. Of course more income is better, but it’s better still if that income is not taxable.
Kiyosaki: Says he loves it when his real estate broker or stockbroker makes a lot of money, because it usually means he made a lot of money.
Reed: Says it means no such thing, that brokers profit from transactions regardless of whether they are profitable for their clients.
Me: Kiyosaki said “usually.” If his transactions are usually profitable, then the commissions he pays usually coincide with him making money. He enjoys sharing the wealth with people who help him make money.
Reed also criticizes Kiyosaki for his:
Buying extravagant things like a Mercedes, Porsche, Rolex, and $400 titanium driver.
What can I say? Some multi-millionaires like to have nice things. It would also look very suspicious if the bestselling author of 18 books about money did not have an expensive car and watch. Kiyosaki said you should build up your assets before buying expensive things, and considering his wealth, his spending habits are proportionately less extravagant than those of all the middle-class people I see struggling to make the payments on their Lexus SUVs.
Lack of respect for education.
Can’t we blame our educational system for failing to teach kids the first thing about finance, and creating the perception that getting good grades will make them successful? I know valedictorians who have been laid off, or stuck in unfulfilling jobs with low salaries.
(Alleged) belief that money is all that matters.
I don’t think he believes that. Besides, the book is called Rich Dad, Poor Dad. What would you expect it to be about, other than money?
Military record.
Reed actually goes into great detail on this. Can we stay on topic, please?
Suggestions about teaching kids about money, when he has no kids himself.
He didn’t claim to be a great parent, or even a parent at all. I don’t see why it’s controversial to say that we could do a better job teaching our kids about money.
Lack of respect for his father, Poor Dad.
I can understand objecting to this, and it’s actually something that bothered me at first. I thought, “why is this guy bashing his father for ‘only’ being upper middle class?” However, Kiyosaki (Robert) says that their relationship was very strained because his dad refused to accept him for having different ideas about money. It may be hard for most of us to relate to this, but it seems plausible.
I could go on, but I think we’ve reached the point of diminishing returns.
Short on specifics
Reed says that about every third email he gets about his analysis of Rich Dad, Poor Dad is from someone who agrees with him that Kiyosaki is short on specifics about how to get rich. He then says in large bold text “I never said Kiyosaki was short on specifics!” He then says that since writing that, the number of such emails he receives is unabated, and asks if these people have all had lobotomies.
Well, Mr. Reed, let me be clear that I have not had a lobotomy, and I realize you did not say that Kiyosaki was short on specifics. However, I am saying that Kiyosaki is short on specifics.
For example, I would have liked to hear how Kiyosaki accomplished the following things:
Earning 16% from the state government.
Buying $75,000 houses for $20,000 or less at bankruptcy auctions or on the courthouse steps with five hours of work.
Buying and selling six properties to create $190,000 of notes with a total of 30 hours of work.
Coming up with four or five great potential real estate deals in one day.
Offering $275,000 for a $450,000 building, and getting the seller to agree to $300,000.
This is a matter of semantics. Reed considers these to be examples of unlikely (but not impossible) scenarios. I consider them to be examples of how Kiyosaki is short on specifics.
Kiyosaki claims that for the average individual, a passive income of more than $100,000 a year is not hard to achieve, and depending on the market and how smart you are, it could be done in five to ten years. That sounds great, but how exactly does one do this? The lack of specifics is my only major complaint about this otherwise great book. However, Kiyosaki has always said his books are meant to be motivational and not how-to guides.
What the book does well
Quite simply, Rich Dad, Poor Dad wakes people up to the fact that the traditional financial advice no longer applies. Getting good grades, getting into a good school, and getting a good job no longer guarantees financial security. People can improve their chances of financial security by educating themselves about how money works, by learning things they didn’t learn in school or from their parents. In a world where the baby boomers are woefully unprepared for retirement, 30-somethings are living with their parents, the average person is saving less than 0% of their income, the future of Social Security and Medicare are in serious jeopardy, the value of the dollar is plunging against other currencies, and the national debt is closing in on $9 trillion, isn’t it about time someone wrote a book like this?
My issues with Kiyosaki
But again, I do not agree with everything that Robert Kiyosaki says. He does have a somewhat flexible relationship with the truth. Take, for example, his contention that a mutual fund company receives 80 percent of the returns that investors earn. In my opinion, this claim is very misleading, although it does have an element of truth to it. He was referring to Vanguard Group founder John Bogle’s statement that if you invest $1,000 for 65 years, earning an 8% annualized return with 2.5% in total annual costs, you would end up with $32,465, which is almost 80% less than the $148,780 you would have amassed if you hadn’t incurred any costs.
But 2.5% is an extraordinarily high expense ratio, and 8% is a little low for a stock fund over 65 years. Let’s run the example again using the Vanguard 500 Index Fund Admiral Shares, with their current expense ratio of 0.09% and assuming a 9% return after taxes on distributions. In that case, you’d end up with $256,687, or about 5.2% less than the $270,846 you’d have amassed without any costs. This 5.2% difference would be even less if the rate of return was less than 9%, or the time period was shorter than 65 years.
The most objectionable thing to me that Kiyosaki has ever said came out in his 4/30/2007 column on Yahoo Finance, “Playing the Mutual Fund Lottery,” in which he essentially says that mutual funds are riskier than the lottery. I sure hope he was exaggerating to get our attention and make a point, but I think he should apologize and set the record straight. [Update 6/11/2007 – Kiyosaki wrote in his column that his friend, CPA, and tax advisor Tom Wheelwright was the primary author of the “Playing the Mutual Fund Lottery” article, that it was written in jest, and that some people just didn’t get the joke.]
Succeeding
Some visitors to Reed’s site have said that if he’s going to criticize Rich Dad, Poor Dad, then he has to suggest a book on how to better yourself that does not have the same flaws. Reed has responded that his self-published book Succeeding fits the bill. And in spite of the fact that I agree with very little of Reed’s take on Kiyosaki, I’m sure that his self-improvement book is excellent, based on his own level of success, attention to detail, and practical nature.
On the other hand, Succeeding, unlike Rich Dad, Poor Dad, is not freely available at my 

Kiyosaki’s Not So Bad: Reply To John T. Reed

Ron Fioro – SpicePuppy Staff Writer – Posted 5/28/2007
[Please Note: Editors notes are in Italic and are preceded by two asterisk (**)]

Robert Kiyosaki is best known for his #1 New York Times bestseller Rich Dad, Poor Dad, which, together with the 17 other books in the Rich Dad series, has sold over 26 million copies. Through his books, educational games, audio cassettes, newsletter, motivational talks, and Yahoo Finance column, he argues that traditional financial advice is obsolete. Instead of telling people to get a good job, work hard, save money, get out of debt, and invest for the long term, Kiyosaki teaches the concept of escaping from the rat race with passive income as a business owner or investor.

But not everyone is a fan of Rich Dad, Poor Dad. Author and real estate investor John T. Reed has earned quite a reputation for his scathing review 
of the book. In fact, a Google search for “Robert Kiyosaki” currently shows John T. Reed’s analysis of Rich Dad, Poor Dad as the second organic search result, right ahead of Kiyosaki’s own 

Before we go any further, let me say that what follows will be of no interest to you if you haven’t first read both Rich Dad, Poor Dad (available at your local library) and John Reed’s review of it (available via the link above). Read the book before you read the review, and approach both with an open mind. Then come back here and read 

For some reason, it’s always easier to believe the negative than the positive. Many people read Rich Dad, Poor Dad and say they’ve experienced a major paradigm shift, that they’ve totally changed the way they think about money. Then they read a negative review and decide that the book is hogwash. Did they suddenly forget the new paradigm they believed in so deeply a few hours ago? (Yes, Mr. Reed’s review is that long.) Maybe rather than just assuming that Reed’s opinion must be valid because it’s negative (and yes, very thorough), it’s best to think objectively and decide for yourself.

Don’t get me wrong, I don’t agree with everything Kiyosaki says, and I have some major issues with him. But I think that Reed’s review is overly harsh and nitpicks on many small details, while ignoring what the book does well.

Was there really a Rich Dad?

Robert Kiyosaki grew up with two dads. His biological father, “Poor Dad,” struggled financially all his life. His friend’s father, “Rich Dad,” went on to become one of the richest men in Hawaii. Rich Dad, Poor Dad is about what Kiyosaki learned from their contrasting points of view about money.

One of the biggest topics of controversy surrounding this book is whether Rich Dad actually existed. Reed says he leans to believing that he was totally made up, citing that Kiyosaki never named Rich Dad, that Rich Dad’s mix of businesses seems unlikely, and that the Honolulu Star-Bulletin was unable to determine the identity of Rich Dad, in spite of the clues given in the book that should greatly narrow down the list of suspects.

Why would Kiyosaki not name Rich Dad? Could it be for privacy reasons? In fact, in Kiyosaki’s latest book co-authored with Donald Trump et al., Why We Want You To Be Rich, he says his reason for not naming Rich Dad is because the family does not want to be named. It’s probably the same reason Reed does not name his wife and three sons on his website, which is perfectly understandable.

Regarding Rich Dad’s business mix of convenience stores, restaurants, and a construction company, Reed claims it would be odd for someone to own both convenience stores and a construction company, and cannot imagine a restaurateur owning a construction company due to the management-intensive nature of both restaurants and construction. Well, I know someone who was a single mother of three small children, and a full-time college student. This already tough load didn’t stop her from also being a financial planner while owning a Century 21 branch and three restaurants. Is this type of thing unusual? Yes. But it can happen.

If the Honolulu Star-Bulletin went looking for Rich Dad exactly as he’s described in the book, then of course they weren’t able to find him. Rich Dad, Poor Dad is based on a true story, but obviously some details have been changed for storytelling purposes. Do you really believe that a nine year old melted down lead and cast it into counterfeit nickels? Do you really believe that every quote in the book from 1956 is repeated verbatim? The copyright page of his book Rich Kid, Poor Kid says “Although based on a true story, certain events in this book have been fictionalized for educational content and impact.” I suppose this disclaimer should have been in Rich Dad, Poor Dad as well, although I thought it went without saying.

Obviously, Kiyosaki’s childhood friend may not have been named Mike, he may not have lived literally next door to Kiyosaki, and Rich Dad may not have been involved in the exact mix of businesses given in the book. Rumor has it that Rich Dad may have been Richard Kimi, the deceased founder of the Sand & Seaside Hotel chain.

Was Richard Kimi in fact Rich Dad? I don’t know. Does it matter? No. The identity of Rich Dad, or whether he existed at all, does not affect the lessons of the book. However, if Rich Dad was made up, then Kiyosaki should not have said the book was based on a true story; that would be too big a detail to fictionalize. But I said “if.” I choose to give Kiyosaki the benefit of the doubt.

**Rich Dad is indeed real – Click here for more information.

Nitpicking

Reed’s analysis consists mainly of taking major issue with many perfectly fine comments that Kiyosaki made. For example:

Kiyosaki: Says the rich get richer.
Reed: Says that sometimes they get poorer.
Me: Kiyosaki meant that in general, the rich get richer. He doesn’t mean that every single rich person is always getting richer without exception. If I said that birds can fly, would you shove a penguin in my face?

Kiyosaki: Says it’s not how much money you make, it’s how much money you keep.
Reed: Says the more you make, the more you keep.
Me: Someone who makes $99,000 in dividends and capital gains will usually keep more than someone who makes $100,000 in wages.

Kiyosaki: Says one of the main reasons net worth is not accurate is simply because the moment you begin selling your assets, you are taxed for any gains.
Reed: Says that about the only asset you would sell at a gain would be real estate, and all other assets like cars, golf clubs, and furniture would sell at a loss for tax purposes.
Me: What about stocks, bonds, and mutual funds? Don’t those often sell at a gain? Even if someone’s net worth is mostly in real estate, sale of rental properties can result in significant taxes in the absence of a Section 1031 tax-free exchange. And who includes golf clubs and furniture in their net worth?
** Also if you own stocks – these rise and fall in price everyday – this materially reflects your net worth position. And a lot of millionaires have taken significant hits in their ‘net worth’ with the dot.bomb. 

Kiyosaki: Says he keeps his holdings private to avoid lawsuits; that if you have money, you get sued.
Reed: Says that on the one hand, Kiyosaki is very high profile about his wealth, yet on the other hand, he won’t disclose any details because he doesn’t want people to know he has money.
Me: He didn’t say he doesn’t want people to know he has money. He said that because he has money, he’s a target for lawsuits, and that he has better protection from lawsuits if people don’t know exactly what he owns.
** Its not that difficult to find out, you just have to put some effort in, and most people couldn’t be bothered (and thats why most people aren’t rich – they don’t put the effort in). 

Kiyosaki: Says he was able to retire at 47.
Reed: Asks “so why didn’t he?” and says he’s still hustling his butt off to sell stuff.
Me: He’s saying he “was able” to retire in the same way someone would say that the Allies “were able” to defeat Hitler; i.e., they could and did. He came out of retirement to spread his message, but marketing his products hardly seems like a rat race job to me.

**Tiger Woods could retire, but his still playing golf. Shaq O’Neil could retire but hes still playing basketball (for 12 years+ !!!). Many star athletes could retire if they want “so why don’t they?” they don’t because they love the game. Kiyosaki loves business and it allows him to get even richer. He has shared a stage and co-authored a book with Donald Trump. If he quit when he could of, he would not be doing that with Mr Trump.

Kiyosaki: Says prices go up because of greed and fear caused by ignorance.
Reed: Says anyone who is reasonably well read knows that prices are determined by supply and demand.
Me: Is Kiyosaki’s statement incompatible with Reed’s? Can’t greed and fear affect demand?
** Greed and fear is supply and demand. It’s just different words to describe the exact same thing – when there is alot of fear in the sock market demand falls and supply rises (as people try to sell), so prices fall (supply and demand). Just like when there is a lot of greed, people want to buy and pay higher and higher prices (just like during the dot.com boom). Same in Real Estate and flippers. 

Kiyosaki: Says most people work all their lives paying for a home they will never own.
Reed: Says their equity increases with each payment, that many people pay off their mortgage in full before they die, and almost all thoroughly enjoy their home both during and after the mortgage.
Me: Equity does not increase with interest-only or negative amortization payments, many young people take out home equity loans, many elderly people use reverse mortgages, and only a small percentage of the people I know own their home outright. The fact that someone enjoys their home does not mean they’re not paying for it.
**Kiyosaki is referring to these current times, when the Baby Boomers have been accessing equity to buy luxuries (holiday houses, cars, holidays, boats, etc). There will be a lot of people who when they retire will NOT have paid off there house. Oh and guess what – You want to know who really owns your house – how about you don’t pay your land taxes – you will usually find your property up for sale in 3-4 years by Local or State Government – Even if you have NO mortgage on it. Now you know who owns your house.

Kiyosaki: Says most people working for a paycheck are making the owners richer.
Reed: Says that’s irrelevant, that you should choose what you do according to how it relates to your goals, and not resent others benefitting from your efforts.
Me: Kiyosaki meant that working for a paycheck benefits the owners more than the employee. Also, many people like to have some control over who benefits from their efforts (think socially responsible mutual funds).
**If I am an employer I am not going to employ someone for $10 per hour to get $5 worth of work out of them, rather I am aiming for $20+ per hour out of them. Kiyosak never says it’s good or bad, hes just saying that the system is based on you providing more value to your employer than you get, (the employee gets in return a ‘secure’ pay check). 

Kiyosaki: Says you work for the bank, in that after taxes your next largest expense is usually your mortgage and credit card debt.
Reed: Says that’s irrelevant, that you should use mortgage and credit card financing whenever they will help you achieve your goals, and resenting bank profits is childish.
Me: Kiyosaki’s point is that most people spend a lot of money servicing their debt, not that you should never use it.
**Kiyosaki is correct. 

Kiyosaki: Says the rich do not play by the same rules.
Reed: Says yes they do, that this is sour grapes thinking used by less successful people.
Me: Kiyosaki gives a very clear example early in the book. When a corporation announces a downsizing, people get laid off, families are hurt, and unemployment goes up. Meanwhile, since the market likes it when a company reduces its labor costs, the shareholders usually get richer.
**Robert Kiyosaki is correct. Most employees because of their status (as employees) cannot use the same tax rules as corporation owners or real estate ‘professionals’.

Kiyosaki: Says he minimizes his income because he doesn’t want to pay it to the government.
Reed: Says that’s idiotic, that you’re always better off with more income as long as the tax rate is less than 100%.
Me: Kiyosaki meant that he minimizes his realized (taxable) income. Of course more income is better, but it’s better still if that income is not taxable.
** I think this proves that Reed really doesn’t know what he is talking about. As a business owner or investor you always try to minimise your taxable income to the lowest level possible. Not knowing the difference means Reed is either totally ignorant (which is ironic because he has written a few books on investing and success) on how the rich get richer (by paying the lowest tax possible) or is trying to fool people who don’t know.


Kiyosaki: Says he loves it when his real estate broker or stockbroker makes a lot of money, because it usually means he made a lot of money.
Reed: Says it means no such thing, that brokers profit from transactions regardless of whether they are profitable for their clients.
Me: Kiyosaki said “usually.” If his transactions are usually profitable, then the commissions he pays usually coincide with him making money. He enjoys sharing the wealth with people who help him make money.
** For most brokers, one commission is not a huge amount of money. Hence if Kiyosaki’s brokers are making a lot of money, it’s because they are approaching him with good deals and he is buying them. If he isn’t getting good deals, he would stop buying stocks or real estate, and the brokers wouldn’t be making much money.

Reed also criticizes Kiyosaki for his:

Buying extravagant things like a Mercedes, Porsche, Rolex, and $400 titanium driver.

What can I say? Some multi-millionaires like to have nice things. It would also look very suspicious if the bestselling author of 18 books about money did not have an expensive car and watch. Kiyosaki said you should build up your assets before buying expensive things, and considering his wealth, his spending habits are proportionately less extravagant than those of all the middle-class people I see struggling to make the payments on their Lexus SUVs.

Lack of respect for education.

Can’t we blame our educational system for failing to teach kids the first thing about finance, and creating the perception that getting good grades will make them successful? I know valedictorians who have been laid off, or stuck in unfulfilling jobs with low salaries.

(Alleged) belief that money is all that matters.

I don’t think he believes that. Besides, the book is called Rich Dad, Poor Dad. What would you expect it to be about, other than money?

Military record.

Reed actually goes into great detail on this. Can we stay on topic, please?

Suggestions about teaching kids about money, when he has no kids himself.

He didn’t claim to be a great parent, or even a parent at all. I don’t see why it’s controversial to say that we could do a better job teaching our kids about money.

Lack of respect for his father, Poor Dad.

I can understand objecting to this, and it’s actually something that bothered me at first. I thought, “why is this guy bashing his father for ‘only’ being upper middle class?” However, Kiyosaki (Robert) says that their relationship was very strained because his dad refused to accept him for having different ideas about money. It may be hard for most of us to relate to this, but it seems plausible.

I could go on, but I think we’ve reached the point of diminishing returns.

Short on specifics

Reed says that about every third email he gets about his analysis of Rich Dad, Poor Dad is from someone who agrees with him that Kiyosaki is short on specifics about how to get rich. He then says in large bold text “I never said Kiyosaki was short on specifics!” He then says that since writing that, the number of such emails he receives is unabated, and asks if these people have all had lobotomies.

Well, Mr. Reed, let me be clear that I have not had a lobotomy, and I realize you did not say that Kiyosaki was short on specifics. However, I am saying that Kiyosaki is short on specifics.

For example, I would have liked to hear how Kiyosaki accomplished the following things:

Earning 16% from the state government. **Tax Liens at Auctions (before they became popular, which led to an increase in price and a lower yield)

Buying $75,000 houses for $20,000 or less at bankruptcy auctions or on the courthouse steps with five hours of work. **Tax Liens

Buying and selling six properties to create $190,000 of notes with a total of 30 hours of work. **Buying 6 Properties and selling them on Vendor Finance terms, usually on a higher interest rate than you pay – Kiyosaki used another Real Estate partner to do the deals – he just got the upside…

Coming up with four or five great potential real estate deals in one day. **Mainly by having great RE Advisors and partners.

Offering $275,000 for a $450,000 building, and getting the seller to agree to $300,000. **Things are only worth what people are willing to buy them at. Helps if the vendors are Don’t Wanters – all they want to do is sell this annoyance –  they don’t want to deal with tenants, or repairs, etc.

This is a matter of semantics. Reed considers these to be examples of unlikely (but not impossible) scenarios. I consider them to be examples of how Kiyosaki is short on specifics.

Kiyosaki claims that for the average individual, a passive income of more than $100,000 a year is not hard to achieve, and depending on the market and how smart you are, it could be done in five to ten years. That sounds great, but how exactly does one do this? The lack of specifics is my only major complaint about this otherwise great book. However, Kiyosaki has always said his books are meant to be motivational and not how-to guides. **Too many ways – Business can be the fast and most profitable way – but high rate of failure. Real Estate can be ‘safer’ (not really – due to leverage and debt), but slower….

What the book does well

Quite simply, Rich Dad, Poor Dad wakes people up to the fact that the traditional financial advice no longer applies. Getting good grades, getting into a good school, and getting a good job no longer guarantees financial security. People can improve their chances of financial security by educating themselves about how money works, by learning things they didn’t learn in school or from their parents. In a world where the baby boomers are woefully unprepared for retirement, 30-somethings are living with their parents, the average person is saving less than 0% of their income, the future of Social Security and Medicare are in serious jeopardy, the value of the dollar is plunging against other currencies, and the national debt is closing in on $9 trillion, isn’t it about time someone wrote a book like this?

My issues with Kiyosaki

But again, I do not agree with everything that Robert Kiyosaki says. He does have a somewhat flexible relationship with the truth. Take, for example, his contention that a mutual fund company receives 80 percent of the returns that investors earn. In my opinion, this claim is very misleading, although it does have an element of truth to it. He was referring to Vanguard Group founder John Bogle’s statement that if you invest $1,000 for 65 years, earning an 8% annualized return with 2.5% in total annual costs, you would end up with $32,465, which is almost 80% less than the $148,780 you would have amassed if you hadn’t incurred any costs.

But 2.5% is an extraordinarily high expense ratio, and 8% is a little low for a stock fund over 65 years. Let’s run the example again using the Vanguard 500 Index Fund Admiral Shares, with their current expense ratio of 0.09% and assuming a 9% return after taxes on distributions. In that case, you’d end up with $256,687, or about 5.2% less than the $270,846 you’d have amassed without any costs. This 5.2% difference would be even less if the rate of return was less than 9%, or the time period was shorter than 65 years.

The most objectionable thing to me that Kiyosaki has ever said came out in his 4/30/2007 column on Yahoo Finance, “Playing the Mutual Fund Lottery,” in which he essentially says that mutual funds are riskier than the lottery. I sure hope he was exaggerating to get our attention and make a point, but I think he should apologize and set the record straight. [Update 6/11/2007 – Kiyosaki wrote in his column that his friend, CPA, and tax advisor Tom Wheelwright was the primary author of the “Playing the Mutual Fund Lottery” article, that it was written in jest, and that some people just didn’t get the joke.]

Succeeding

Some visitors to Reed’s site have said that if he’s going to criticize Rich Dad, Poor Dad, then he has to suggest a book on how to better yourself that does not have the same flaws. Reed has responded that his self-published book Succeeding fits the bill. And in spite of the fact that I agree with very little of Reed’s take on Kiyosaki, I’m sure that his self-improvement book is excellent, based on his own level of success, attention to detail, and practical nature. **Considering Reed’s background his Book ‘Succeeding’ has an extremely ironic title to it – Take a look at Reeds Background Info here

On the other hand, Succeeding, unlike Rich Dad, Poor Dad, is not freely available at my library.

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1 Comment »

  1. Hi, I really appreciate your effort. That clear my mind a lot. Thanks:)

    Comment by Lois — April 9, 2010 @ 3:50 pm


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