In focus: Rich Dad Poor Dad by Robert Kiyosaki
- FinTastic BEacon
- Jul 14, 2021
- 14 min read

Welcome to the inaugural article of In focus series by FinTastic Beacon. Today we are going to discuss RDPD by Robert Kiyosaki. Unlike the common vague book reviews, this is going to be a critical analysis. I am going to look at it on its merit & give you all the reference so that you can cross check yourself.
(Pages mentioned are according to First Plata Publishing Edition of March 2011)
Intro
RDPD is a part “autobiography”, part personal finance book by Robert Kiyosaki. Here, Author attempts to summarize his learning from his rich dad who is father of his best friend Mike. These learnings supposedly helped him build an empire. It is one of the most famous (definitely the most profitable) personal finance book ever written.
The book contains some decent advice. Throughout the whole book he gives you “real” stories based on his life experiences, which makes it convincing to general public. It is the main reason for the commercial success of RDPD franchise & his cult following.
The book revolves around 2 key points: First is the idea of generating passive income through investments until passive income can support the individual & second is how to differentiate between an asset & a liability. He tries to make you believe about the existence of secrets to build wealth and the cabal of rich people trying to keep it so. He portrays himself as a messiah to the masses, who wishes to share all the secrets even at the expense of backlash from his rich friends.
About The book
Quotes
· “There is a difference between being poor and being broke. Broke is temporary. Poor is eternal.”
· “A job is really a short-term solution to a long-term problem.”
· “Workers work hard enough to not be fired, and owners pay just enough so that workers won’t quit.”
Who should read it:
Because it contains general advice, simple language & many stories could be a great book for financially illiterate. Yet there are many bad advice, wrong info which can be very dangerous (read losing everything & going to jail) for the less informed. (These will be covered in critique section)
Summary (from the perspective of Author)
The story starts with two 9 years olds: RK & his friend Mike, who were hurt by attitude of rich kids. So they vow to get rich by themselves. In this pursuit of riches, his dilemma was whether to listen to his highly educated yet poor dad or high school dropout rich dad which got further complicated considering the rich dad was not rich yet, and the poor dad was not poor yet. He talks about their striking difference in mentality which frankly feels like taken directly from a debate between a capitalist and a socialist.
The rich trap the poor and the middle class in the misfortune by keeping the subject of money out of school. They tell their children all the secrets but as the poor have none, they can only advice to study hard which only accentuate a poor person’s financial programming and mind-set. Because of this lack of financial education, they don’t realize govt. always takes its cut first through tax.
Ch-1 says “The poor and the middle class work for money. The rich have money work for them.” This is about earning for consumption vs investment. Author again repeats it in Ch-2 as “It’s not how much money you make. It’s how much money you keep.” Those who don’t follow this end up losing all their fortune like most lottery winners or professional athletes. He goes on to mention more old clichés like people who find everything unfair want everyone else to change for them; people say they don’t want money yet work hard for someone else.
He talks about R. Buckminster Fuller’s definition of Wealth & how it influenced his idea of retirement. Wealth is a state of financial independence where it grows automatically without any constant supervision. This also explains how net worth is not accurate because when you start selling your personal assets, you get back only a fraction money you paid while acquiring the assets. Once in a blue moon the value might appreciate, then you are taxed for any gains. He then links it to difference between asset & liability in terms of cash flow. An asset puts money in my pocket. A liability takes money out of it. Due to lack of this knowledge the poor and middle class acquire liabilities that they think are assets. Through this cash flow pattern, he tries to explain how the rich get richer and the poor get poorer and middle class are stuck in limbo. But he forgets to mention it is only in the context of consumption driven economies. Side-effect of this ignorance is that people don’t distinguish between their profession & business. Your business revolves around your asset column, not your income column. (Do check out the cash flow pattern (p 47) & how the quest for a financial dream turns into a financial nightmare: story of every middle-class family who are destined to stay middle class (p 53). This section can be helpful to many people.)
Rich dad tells him, “Robin Hood is a crook”. Truth is all wannabee Robin Hoods are crooks and we have plenty. P 80 explains the history of tax, which is one of few factually correct portion of book. The socialist system of govt. organizations doesn’t appreciate efficiency & effort. They are more respected when they hire more people, spends more money which is exactly opposite in the context of a private organization. Because of this socialist/Robin hood mentality, tax base had to be increased and thus middle class and the poor ended up paying more and more tax. The rich know more about money or the people who know more about money like accountants, lawyers. They also have influence (through politician friends), so they change the law and/or find loopholes to pay less tax.
The next section talks about Financial IQ which constitutes of four skills:
1. Accounting (financial literacy or the ability to read numbers),
2. Investing (how to make money from money),
3. Markets (force of supply and demand)
4. The law.
It is very important to note his understanding of these factors are much different from any businessmen who believe in legal & ethical practices, but more on that later. He moves on to explain evolution of wealth, how it has moved from land to factory to information. Please note in all ancient civilisations, wealth was considered stock of animals or precious metal/stone/textile not land as there was enough land for everyone.
Specialization makes good employee (who are supposed to be middle class/poor) not owner (Supposed to be rich). For business we need to learn little bit of everything. It is because of knowledge of business system McDonald is a giant even with an inferior burger. He again moves on to rehashed ideas of herd mentality and power of association where he advises to wait for the next opportunity.
Let’s dissect RDPD!
What I liked:
It’s easy to read & comprehend.
He is really articulate and a great storyteller. He knows how to grab the attention of his audience. (Unsurprisingly, a common characteristic among all con men.)
What I didn’t like:
It contains no actionable advice or specific direction, only advocates for a state of mind.
It could have been thinner (I like fat in food not in book). A lot of information given is not relevant or important for the effectiveness of the story.
Contains a lot of old cliché but no original advice. A lot of advice is copied directly from Richest man in Babylon (though RDPD is the better book).
Contradicts himself a lot:
On P 107 he brags about his timing in investment. On P 151 he says, “Smart investors don't time markets.” On the same page he again counters it by saying “Wise investors buy an investment when it's not popular. They know their profits are made when they buy, not when they sell.”
On P 131 he talks about Texan attitude: “If you’re going to go broke, go big. You don’t want to admit you went broke over a duplex.”. But in P 160 he says, “I only play with money I can afford to lose.”
On P 158 he says, “Treat brokers well, Pay them well.” On P 168 he throws his advice in dust bin & makes the agent show him 6 properties & offers half the asking price. It is not only wastage of agent’s time; it is also a financial punishment. Agents make money through commission, so when selling price is halved, commission is halved also. On P 171 he advises to become the broker yourself “Look for people who want to buy first. Then look for someone who wants to sell.”
He advocates specialization throughout the book (investment in real estate). On P 123, he criticizes specialization saying specialized skill need union protection as they are risky. On P 74, when the banks use this logic to deny him loan as most of money is coming from rent (which is equally risky if not more), he cries foul. He also accepts his bad financial condition on P 74 “One day when I wanted a loan, my financial position did not look too good.” & P 156: “I actually have liabilities that are higher than 99 percent of the population….”. Had more banker followed such procedures financial crisis could have been avoided.
Logical Inconsistency, Bad Advice and Obvious Lies
Author believes getting a job is for losers. People who work for others are dumb and wasting their time: FALSE! People have different capabilities. There are people who can create great company but can’t manage it, design great product but can’t test or update it. Think of it this way: making soap is an easy process, anyone can do it. Yet most people can sell much more number of a P&G or Unilever soap than their own brand. So even if you get only a small part of that sale in the end you end up making more money with less effort. Frankly, it is very insulting to innocent hard working people. I think those who don’t do background check and research where they are going invest tens of thousands of dollars are the real losers. They are the ones who made him millionaire by buying ridiculously priced seminars costing more than yearly tuition fee of the best institutes. Not everyone can and should own a business. Someone with the most basic knowledge of economics knows there are different factors of production: human resources, capital, labour, technology, land etc. Most people are good with owning or managing only 1 or 2 factors.
P 14: His rich dads owns a chain of convenience stores, 3 restaurants, warehouses, a construction company. It’s highly improbable that owner of 3 restaurants would be running a construction company. Both demands a lot of direct management; they require different skill set and management style. This can only be true for someone who is already rich and whose businesses already have established brand & steady revenue which was not the case here.
P 31: "People pretend they are not interested in money, yet work at a job for 8hrs/day." - He termed it denial of truth. Though this true to some extent but not entirely. Soldiers, scientists, doctors work long hours (much more than they legally need to). They give personal sacrifice. It begs the question how can a highly decorated war veteran say these words? Or he is just pretending to be one? (Check out John Reed analysis. Disclaimer it is very long & he has his own agenda.)
Just like his rich dad, he is a man of many talents. On P 77, he discloses another expertise: small-cap companies. In reality, investment in real estate and small-cap co. are very different, they require different skill set & frame of mind. One has generally low risk and the other is highly risky. One is a physical asset so you can salvage something, whereas you have no idea about the real worth of a small-cap company. A very small percentage of these makes money & those who do generally gives back a lot (basic risk-return trade-off). On P 84, he says he knows “what the investment is, understand it, and know the game”, that means he is doing proper research. Analysts, the people who actually do that, have that as a full-time job. Even they bet on many stocks, so that one of them would pay off. On P 108, he says he has turned $25K to $1mn in less than a year multiple times by investing in small cap share. It is highly improbable. That’s a more than 3,900% return, that too in USA. Very few investments return that type of return and definitely not so frequently.
P 99: He buys $75K house for 20K or less at bankruptcy attorney’s office or courthouse steps and sell it at 60K with 5 hrs work. Well if he sells it at 60K then it is a 60k house not 75K. Even friends & family discount is not 20%. Plus, you might get a 60k house for 20k but only if it is a murder site. Good luck finding people to sell or rent a such a place at full market price.
P 107: Author offered $275,000 to the German owner of a $450,000 building & got a counter for $300,000. It is easier to convince that happened to someone who have never owned a home, who are coincidentally his target audience. Anyone who owns a $450,000 house or the broker who deals in that size of building won’t find it convincing. Let’s say they wanted out because they lived elsewhere. Even then, I doubt they wouldn’t just pick up their phone and call a broker, posing as a customer, to find the going rate in that location. (If you pose as a customer they will give a little inflated figure, so that when the you pay the right price you would belief they got you a great deal.). I know illiterate farmers/fisherman from remote villages who call to different markets to find out what is going rate before selling their whole stock. Certainly someone who owns a $450,000 house in a different country would spend some time thinking how to get most out of their assets.
P 151: “It’s all “insider trading” …. The only distinction is: How far away from the inside are you?” Stay away from this advice. True, some people do this, but insider trading is NEVER legal. You have to disclose all inside information, how you got it and what you did with that info to the required authority. Confidential information is like drugs/firearm/dead body; if you find it on your property, you are legally required to disclose it to the authority; otherwise you will be in big trouble when they find it by themselves.
P 156: He is proud that he doesn’t pay for liability. Other people, tenant, pay for him. Many times in the book he talks about 20 or 30-year loan. But you don’t know in 30 years how the socio-economic and macroeconomic factors will change. Let’s say you find low maintenance high paying tenant as a tech company builds its head office nearby. But if the company goes out of business or changes its location for any reason you would be in great trouble. This has happened multiple times even with traditional industry, though today with the rise of tech industry the risk is higher. I know this from personal experience: Rourkela (Steel) bounced back but Detroit(auto) couldn’t.
P 158: “Pay professionals well as good broker provides you information and spends time to educate you.” I know some accountant who would educate you (as they need extra info to take advantage of certain legal loopholes) but I can’t think of any other broker/agent who would do the same. They have two objections: As they have to invest more time on each client, they can complete less deals which means less opportunity for conversion. Now, there is more risk that this “educated” client would not come back in future for buying or selling as he has already learned how to do it himself. (side note: Prof. Steven Levitt explains it very well in term incentive in his book Freakonomics (P 7-9).) Again in the same page 158, he says people who sell their house on their own must not value their time much. Now, if you don’t want to buy/sell by yourself, then what are going to do with all the education you receive from your broker?
P 164: He says if broker/agent makes more money means he makes more money. WRONG! In most situations it is exactly opposite. In case of divorce, a couple wastes a lot of money on lawyers, the money which could have been used on better avenues: Essentials like health, education or even entertainment/luxury like car/ family trip/concert tickets. Even though there are many laws to protect buyer/seller interest, real estate brokers break those laws regularly. To know more about it Check out CBC market place’s exposé.
P 169: He makes offers with escape clauses i.e. subject-to approval of a business partner. His cat is supposedly his business partner. Actually any real estate agent (or any agent period!) wouldn’t entertain such an offer. Either they will say comeback when you get an OK from your partner or they will give an early deadline to confirm your commitment. Again it’s easier to play smart in front of people who have no idea about that business. But, people who are in that business aren’t that stupid. Plus, brokers are highly informed and social group irrespective of high intensity rivalry. Chances are once you pull that off, they will virtually ban you from all future deal and sue you in court. For when the court deposes your partner, you should remember the captain’s instruction: BRACE FOR IMPACT!
P 171: He tied the land with an option and cut out a piece and sold it to friend, then kept the remaining for free. (I really wonder which type of friend.) Anyone spending hard earned money always checks all the deeds/paper and either deals with the seller or agent, not some 5th party. If you start buying real estate with option, you are going to lose a lot of money. Even corporates are becoming more and more picky about their property: location, building style, energy efficiency, parking space, access to public transportation etc. He is talking about residential property. What he ignores is buying a house is very emotional moment for most people. That’s why many don’t care about cost benefit analysis for their home. They know rent is the economical option. People don’t buy perfectly good house for small things like wrong colour of wall, choice of furniture, painting showcased even if they know they can mould it to their taste with very little cost & effort. It raises serious question how much he knows about real estate.
But leaving the question of ethics, stupidity or knowledge of industry aside, I am pretty sure what he is suggesting is FRAUD! If you do that you’ll have to pay heavily both in terms of money and prison time. Remember a broker can lose her licence for not disclosing all the offers (even if it is not the highest offer). Let’s say you are in the market to buy top of the line variant of an executive sedan. You drive alone & don’t listen to music while driving. What he is suggesting is similar to I go buy a car from your money, swap out your great music system with a crappy 20-year-old one, switch electronically adjustable, heated/ventilated passenger seats to regular ones as you don’t need it and give you the car and don’t tell you what I did. When you realize what i have done, will you sue or not? Can you expect others not to sue you when the asset in question(land/building) is much more valuable?
Additional resources: Pg. Xxvi: He says his CASHFLOW game is a better teaching tool than reading a book or lecture. The game can actually be a good stepping stone for those who know nothing about personal finance. But important thing to note is that it isn’t a simulation of life, nor is it any close to that. It is a tool to confirm his advice/theories. If you follow his advice you win the game, but winning in life isn’t so easy. Life doesn’t tell you these are the rules and here’s a new opportunity for you and this is how you win. Opportunities in real life are not that obvious. Most opportunities are realized only in retrospective. Most never realize the opportunity… EVER! The best & brightest like Steve Jobs, Bill Gates, Terry Semel, Warren Buffett have lost out on opportunities presented to them on silver platter and that too multiple time. Even George Lucas sold Star Wars. What a tool!
Conclusion
CBS puts it best: If you want to be a millionaire working less than three hours a week, you narrow your options down to a mere two - Be part of a lucky gene pool and inherit it or, if that's not an option, try creating a sales system that teaches others how to be rich without working hard. You could be the next Robert Kiyosaki, with people flocking to your seminars, because common sense really isn't all that common.
Personally for me, the 1st red flag was a 9 year old who know nothing about money or business deciding to listen to a high school dropout instead of his highly educated father, particularly when the drop out wasn’t even richer than his real dad. I think he expects same lack of logic in his readers.
If you would like a critical analysis of the author, please comment in forum section & Feel free to discuss & critique our analysis there as well.
Thanks for your time.
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