Rich Dad Poor Dad: What the Rich Teach Their Kids About MoneyThat the Poor and Middle Class Do Not!

LESSON 2: WHY TEACH FINANCIAL
LITERACY?
It’s not how much money you make. It’s how much money you
keep.
In 1990, Mike took over his father’s empire and is, in fact, doing a
better job than his dad did. We see each other once or twice a year on the
golf course. He and his wife are wealthier than you could imagine. Rich
dad’s empire is in great hands, and Mike is now grooming his son to take
his place, as his dad had groomed us.
In 1994, I retired at the age of 47, and my wife Kim was 37. Retirement
does not mean not working. For us, it means that, barring unforeseen
cataclysmic changes, we can work or not work, and our wealth grows
automatically, staying ahead of inflation. Our assets are large enough to
grow by themselves. It’s like planting a tree. You water it for years, and
then one day it doesn’t need you anymore. Its roots are implanted deep
enough. Then the tree provides shade for your enjoyment.
Mike chose to run the empire, and I chose to retire.
Whenever I speak to groups of people, they often ask what I would
recommend that they do. “How do I get started?” “Is there a book you
would recommend?” “What should I do to prepare my children?” “What is
your secret to success?” “How do I make millions?”
Whenever I hear one of these questions, I’m reminded of the following
story:

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The Richest Businessmen
In 1923 a group of our greatest leaders and richest businessmen
held a meeting at the Edgewater Beach hotel in Chicago. Among
them were Charles Schwab, head of the largest independent steel
company; Samuel Insull, president of the world’s largest utility;
Howard Hopson, head of the largest gas company; Ivar Kreuger,
president of International Match Co., one of the world’s largest
companies at that time; Leon Frazier, president of the Bank of
International Settlements; Richard Whitney, president of the New
York Stock Exchange; Arthur Cotton and Jesse Livermore, two of
the biggest stock speculators; and Albert Fall, a member of
President Harding’s cabinet. Twenty-five years later, nine of these
titans ended their lives as follows: Schwab died penniless after
living for five years on borrowed money. Insull died broke in a
foreign land, and Kreuger and Cotton also died broke. Hopson went
insane. Whitney and Albert Fall were released from prison, and
Fraser and Livermore committed suicide.
I doubt if anyone can say what really happened to these men. If you
look at the date, 1923, it was just before the 1929 market crash and the
Great Depression, which I suspect had a great impact on these men and
their lives. The point is this: Today we live in times of greater and faster
change than these men did. I suspect there will be many booms and busts in
the coming years that will parallel the ups and downs these men faced. I am
concerned that too many people are too focused on money and not on their
greatest wealth, their education. If people are prepared to be flexible, keep
an open mind and learn, they will grow richer and richer despite tough
changes. If they think money will solve problems, they will have a rough
ride. Intelligence solves problems and produces money. Money without
financial intelligence is money soon gone.
Most people fail to realize that in life, it’s not how much money you
make. It’s how much money you keep. We’ve all heard stories of lottery
winners who are poor, then suddenly rich, and then poor again. They win

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millions, yet are soon back where they started. Or stories of professional
athletes, who at the age of 24 are earning millions, but are sleeping under a
bridge 10 years later.
I remember a story of a young basketball player who a year ago had
millions. Today, at just 29, he claims his friends, attorney, and accountant
took his money, and he was forced to work at a car wash for minimum
wage. He was fired from the car wash because he refused to take off his
championship ring as he was wiping off the cars. His story made national
news and he is appealing his termination, claiming hardship and
discrimination. He claims that the ring is all he has left and if it was
stripped away, he’ll crumble.
I know so many people who became instant millionaires. And while I
am glad some people have become richer and richer, I caution them that in
the long run, it’s not how much money you make. It’s how much you keep,
and how many generations you keep it.
So when people ask, “Where do I get started?” or “Tell me how to get
rich quick,” they often are greatly disappointed with my answer. I simply
say to them what my rich dad said to me when I was a little kid. “If you
want to be rich, you need to be financially literate.”
That idea was drummed into my head every time we were together. As I
said, my educated dad stressed the importance of reading books, while my
rich dad stressed the need to master financial literacy.
If you are going to build the Empire State Building, the first thing you
need to do is dig a deep hole and pour a strong foundation. If you are going
to build a home in the suburbs, all you need to do is pour a six-inch slab of
concrete. Most people, in their drive to get rich, are trying to build an
Empire State Building on a six-inch slab.
Our school system, created in the Agrarian Age, still believes in homes
with no foundation. Dirt floors are still the rage. So kids graduate from
school with virtually no financial foundation. One day, sleepless and deep
in debt in suburbia, living the American Dream, they decide that the answer
to their financial problems is to find a way to get rich quick.
Construction on the skyscraper begins. It goes up quickly, and soon,
instead of the Empire State Building, we have the Leaning Tower of
Suburbia. The sleepless nights return.

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As for Mike and me in our adult years, both of our choices were
possible because we were taught to pour a strong financial foundation when
we were just kids.
Accounting is possibly the most confusing, boring subject in the world,
but if you want to be rich long-term, it could be the most important subject.
For rich dad, the question was how to take a boring and confusing subject
and teach it to kids. The answer he found was to make it simple by teaching
it in pictures.
My rich dad poured a strong financial foundation for Mike and me.
Since we were just kids, he created a simple way to teach us.
For years he only drew pictures and used few words. Mike and I
understood the simple drawings, the jargon, the movement of money, and
then in later years, rich dad began adding numbers. Today, Mike has gone
on to master much more complex and sophisticated accounting analysis
because he had to in order to run his empire. I am not as sophisticated
because my empire is smaller, yet we come from the same simple
foundation. Over the following pages, I offer to you the same simple line
drawings Mike’s dad created for us. Though basic, those drawings helped
guide two little boys in building great sums of wealth on a solid and deep
foundation.