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Robert Kiyosaki Why the Rich Get Richer

Robert Kiyosaki, Why the Rich Get Richer

Why the Cheap Will Never Get Rich

by Robert Kiyosaki

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Posted on Tuesday, April 7, 2009, 12:00AM

The other day a friend of mine approached me excitedly, saying, "I found the house of my dreams. It's in foreclosure and the bank will sell it to me for a great price."

"How good is the price?" I asked. 

"Just before the real estate market crashed, the seller was asking $780,000 for the property. Today, I can buy it from the bank for $215,000. What do you think?" she asked.

"How would I know?" I replied. "All you've given me is the price."

"Yes!" she squealed. "Now my husband and I can afford it."

"Only cheap people buy on price," I replied. "Just because something is cheap doesn't mean it's worth the cost."

I then explained to her one of my most basic money principles: I buy value. I will pay more for value. If I don't like the price, I simply pass. If the seller wants to sell, he will come back with a better price. I let him tell me what he will accept. I know some people love to haggle; personally, I don't. If a person wants to sell, they will sell. If I feel what I am buying is of value, I'll pay the price. Value rather than price has made me rich.

Against my advice, my friend sought financing for her "dream" home.

Fortunately, the bank turned her down. The house was on a busy street in a deteriorating neighborhood. The high school four blocks away was one of the most dangerous schools in the city. Her son and daughter would either have to go to private school or take karate lessons. She is now looking for a cheaper house to buy and has asked her father, who is retired, for help with the down payment. If her past is a crystal ball to her future, she will likely always be cheap and poor, even though she is a good, kind, educated, hard-working person.

My Point of View

What follows are some thoughts on why my friend will probably never get ahead financially -- especially in this market.

1. She and her husband have college degrees but zero financial education. Even worse, neither plans to attend any investment classes. Choosing to remain financially uneducated has caused them to miss out on the greatest bull and bear markets in history. As my rich dad often said, "What you don't know keeps you poor."

2. She is too emotional. In the world of money and investing, you must learn to control your emotions. When you think about it, three of our biggest financial decisions in life are made at times of peak emotional excitement: deciding to get married, buying a home, and having kids.

My dad often said, "High emotions, low intelligence." To be rich, you need to see the good and the bad, the short- and long-term consequences of your decisions. Obviously, this is easier said than done, but it's key to building wealth.

3. She doesn't know the difference between advice from rich people and advice from sales people. Most people get their financial advice from the latter -- people who profit even if you lose. One reason why financial education is so important is because it helps you know the difference between good and bad advice.

As the current crisis demonstrates, our schools teach very little about money management. Millions of people are living in fear because they followed conventional wisdom: Go to school, get a job, work hard, save money, buy a house, get out of debt, and invest for the long term in a well-diversified portfolio of mutual funds. Many people who followed this financial prescription are not sleeping at night. They need a new plan. Had they sought out a little financial education, they might not be entangled in this mess.

A Thank You to Jon Stewart

Speaking of finance experts, I personally want to thank Jon Stewart of 'The Daily Show' for taking on Jim Cramer and CNBC. Jon Stewart did an incredible job of representing the millions of people all over the world who have lost their savings in the market. He was right in saying he thought it "disingenuous" to advise people to invest for the long term through their retirement plans while knowing full well that traders could steal Americans' retirement money by trading in and out of the market. Most traders like Cramer realize that investing in mutual funds for the long term is financial suicide. Cramer should have spoken up, but we all know why CNBC won't let him tell the truth. If he did, the station's advertisers would leave.

While I applaud Cramer for going on 'The Daily Show' and facing the music, I'm afraid he was marginalized by Stewart -- certainly outgunned -- and he has lost his credibility. He may pay an even bigger price if the SEC decides to dig deeper.

Jim Cramer is a very smart man. I watch his show. I just do not follow his advice.

In closing, I will say what I have said for years: We need financial education in our schools. Without it, we cannot tell the good advice from the bad.

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747 Comments

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  • Yahoo! Finance User - Wednesday, November 4, 2009, 1:53PM ET  Report Abuse

    • Overall: 5/5

    I completely agree that money management should be taught in school. I often say I wish I had learned about saving, investing, and credit at a much earlier age instead of receiving my first credit card at 18 with a $1,000 limit.

  • eem21ballester@yahoo.com - Friday, October 30, 2009, 12:22PM ET  Report Abuse

    • Overall: 5/5

    I totally agree..I wish to have learned finances in my school days. Never is late but...

  • F!REFLY - Wednesday, October 21, 2009, 3:47PM ET  Report Abuse

    • Overall: 4/5

    I agree. As an example, what is the point of buying something that breaks a year later, or buying something at a higher price that last for five years and the average cost per year ends up being less then first items cost. Unfortuanlty sometimes due to the need and finances at the time you may need to purchase the first item out of neccessity.

  • Ayana - Monday, October 19, 2009, 10:40AM ET  Report Abuse

    • Overall: 5/5

    I totally agree ... i had a former boss who owned her own daycare but was soooo cheap about everything she did with it ... she began to loose good employees and clients because of it ...

  • Yahoo! Finance User - Saturday, October 10, 2009, 8:37AM ET  Report Abuse

    • Overall: 5/5

    I agree 100% with Mr. Kiyosaki when he says that personal finance should be taught in schools. I was out of High School for less than a year before I was offered a credit card. I had no idea the ramifications that I would face later on based on my financial decisions at 18.

  • Yahoo! Finance User - Tuesday, September 15, 2009, 9:37PM ET  Report Abuse

    • Overall: 2/5

    Well, I at least agree with Robert about one thing here ... don't listen to Cramer! That's very good advice. As to the rest, well, no comment.

  • Kimberly S - Tuesday, September 15, 2009, 1:20AM ET  Report Abuse

    • Overall: 4/5

    Robert is absolutely right - schools need to teach finance in school. Our young people desperately need finance education if there is any hope for a secure life.

  • LOUIS - Friday, September 4, 2009, 1:26PM ET  Report Abuse

    • Overall: 5/5

    There is nothing worse than being CHEAP!

  • kathleenb - Thursday, September 3, 2009, 12:10AM ET  Report Abuse

    • Overall: 4/5

    I think the last two posts are missing the point does Jim Cramer's staff have nothing better to do than damage control on internet forums? Oh wait that is the best thing that they can do cause Jim's a clown. Anyway I reconized myself in the story on how I used to be. I would say it's only a dollar! I would purchase needless things soon my house was filled with crap. I have learned to buy quality and purchase the best I can afford as well as fully reasearhing any item that would be an investment such as appliances and most importantly services.

  • Yahoo! Finance User - Wednesday, September 2, 2009, 1:08PM ET  Report Abuse

    • Overall: 2/5

    Weak article. Very NON-informative. Good points to think about, but no real advice is given.

  • Yahoo! Finance User - Monday, August 31, 2009, 10:40PM ET  Report Abuse

    • Overall: 1/5

    Weak article, he doesn't support the claim he makes in the title at all, and provides generic advice about how being financially uneducated will keep you poor.

  • Yahoo! Finance User - Tuesday, August 25, 2009, 6:02AM ET  Report Abuse

    • Overall: 1/5

    Your article didn't show how getting a cheap house keeps you poor. You did explain how being financially uneducated will keep you poor, but that does not address your topic - namely that being cheap will keep you poor. What if I'm well educated and I choose to get a cheaper house in an area where crime is low? You could have at least pointed out that a bank repo/foreclosure home usually requires some major and expensive work to fix it up, as compared to a new home. THAT would have helped your argument. Unless of course you get a house that was worth $750K and it's now selling under $300K, in which case you got a monster of a deal. I say this because I live in Elk Grove and I see a ton of McMansions here that WERE $700K and are now $400K or less. But then allow me to help you out here again - not many people need a McMansion. You could have pointed out the property tax issues **and utility bills** that will haunt you more for buying a $400K house than if you bought a more modest $200-$300K house that would still house your family comfortably. My point is the discounted McMansion provides THE ILLUSION of cheapness that will ultimately cost you in recurring tax & energy bills - but you did not make this point, which would have made your article a lot stronger. Even so your point was still beyond rescue. You can go for a $200K house in a nicer area (and they do exist), which definitely qualifies as cheap; and if the house isn't a McMansion you can also save on energy bills as well as taxes. No reason to fail to get rich off savings like that! Being cheap does not keep you from getting rich. Being unaware of the financial ramifications of your actions keeps you from getting rich.

  • Clint - Thursday, August 20, 2009, 8:55PM ET  Report Abuse

    • Overall: 4/5

    Very good information. Thank you. I must agree with your statements here, which agree with what most of the experts say. I enjoyed the book that you wrote with Donald Trump. The book you guys wrote is a very good read.

  • mirna - Thursday, August 20, 2009, 8:20AM ET  Report Abuse

    • Overall: 5/5

    thank you for telling us what we need to hear, not what we want to hear.

  • Dan D - Wednesday, August 19, 2009, 4:19PM ET  Report Abuse

    • Overall: 1/5

    Why does yahoo continue to have this bonehead posting financial advice and posing as an expert. He is a well exposed fraud and B.S. artist. See John T. Reed's website on Kiyosaki.

  • Esteban - Wednesday, August 19, 2009, 2:57PM ET  Report Abuse

    • Overall: 1/5

    This not help.

  • Yahoo! Finance User - Wednesday, August 19, 2009, 12:09PM ET  Report Abuse

    • Overall: 1/5

    This article was pointless. He's rambling on and on with no factual evidence of his perspective. What a waste of my time.

  • chill bob - Saturday, August 8, 2009, 4:07PM ET  Report Abuse

    • Overall: 1/5

    I'm not sure why the article had to talk about Jim Cramer to begin with. Homework is required whenever you're investing -period. And Jim Cramer's show certainly has a lot more material than does this article :)

  • Heykidima Computer - Wednesday, August 5, 2009, 8:49PM ET  Report Abuse

    • Overall: 1/5

    You f stick. "I watch the show but dont listen to his advise." Seriously come up with some decent information or stop playing w/ yourself while writing this crap. If you do not listen to peoples advise then why would anyone listen to yours. The point is that you just need to take you own stand point on the infomation given. I have only made money listening to Cramer. I have only made money listening to the so called "experts" because I take what they say w/ a grain of salt and figure out if there is value with what is said. As for this column, its all sour.

  • Will R - Tuesday, August 4, 2009, 1:33PM ET  Report Abuse

    • Overall: 1/5

    hindsight is wonderful-his advice contains nothing we don't already know

  • ub2day - Sunday, July 26, 2009, 3:24PM ET  Report Abuse

    • Overall: 2/5

    Another fine parable from Robert. I think buying value is good advice if you are smart enough to recognize value. I also think a lot of the 5 star ratings are from wannabe's.

  • KyungP - Monday, July 20, 2009, 11:49PM ET  Report Abuse

    • Overall: 5/5

    I read Robert's books. They are easy reading and not surprisingly, they tell you nothing new. But you gotta give him credit for marketing and creating new avenues to peddle his books/DVD/whatever. I saw several months ago that even PBS was packaging his stuff as a "gift" if you donate $ to the PBS.. I also thought his wife's doing something similar. Anyway, I have higher education and IQ, but I'm sure he has much higher . So he receives 5 stars.

  • Yahoo! Finance User - Sunday, July 19, 2009, 9:46AM ET  Report Abuse

    • Overall: 1/5

    Excessive spending will never get you rich. Not manufacturing any goods will never get you rich. The list goes on... There are a vast array of things that will never get you rich. What's the point?

  • freedomfight - Tuesday, July 14, 2009, 12:47PM ET  Report Abuse

    • Overall: 5/5

    I rate him very high because he is advising the novices, the newcomers, the new graduates the very basic concept of VALUE in finance. I see it every day some people buying the cheapest only because of the dollar amount which does not last hence not cost effective. It is important to keep in mind that Quality enhances Value. Regarding Investment, remember the concept of profit and loss, profit and profit and profit only is possible but rare. As for Cramer, just a showman.

  • Bubb - Wednesday, July 8, 2009, 10:04PM ET  Report Abuse

    • Overall: 1/5

    Some very good reasons not to read RK. See http://www.johntreed.com/Kiyosaki.html#financialgenius

  • Nick - Thursday, July 2, 2009, 7:15PM ET  Report Abuse

    • Overall: 5/5

    Again, I like roberts post. Either you love robert, or you do not fully undertsand CAPITALism. CAPITALism, means whoever has CAPITAL makes the money. America is not based on WORKism. America is based on CAPITALism. The only true path to long term wealth is the correct saving and investment of CAPITAL. Only through **correct** saving and investment can you be wealthy.

  • DavidS - Tuesday, June 30, 2009, 2:48PM ET  Report Abuse

    • Overall: 5/5

    1 STARS: if you know anything at all bout Robert you would know that he does not nor has he ever adviced anyone to buy RE just to sell it later at a higher price. THAT is his problem w stock/bonds & mutual funds by the way. Most people buy to make a profit when they sell. (which makes them traders, not investors) Unless he can make money with it as soon as he buys it...he doesn't bother with it. That is his bottom line message through everything he says/does. As for diversification....EXCELLENT idea. But do you really think that just buying different stocks/bonds * mutual funds is really diversifying? They are all the same kind of asset.

  • Keegan - Monday, June 29, 2009, 12:14AM ET  Report Abuse

    • Overall: 1/5

    Kiyosaki, I remember when people I new were running around chanting real estate, real estate, and attending Kiyosaki seminars. Since then two real estate busts have taken place, this being the worse. And, the notion that traders in the stock market any more than traders in the derivative markets prevent any form of investment from being successful is imature and, well, bad commentary. Mr. Kiyosaki should now beter than anyone that how investments are made and managed are much more important. Value is illusive at best especialy in these times.

  • Yahoo! Finance User - Friday, June 26, 2009, 3:35AM ET  Report Abuse

    • Overall: 1/5

    I admire Mr. Kiyosaki but he keeps repeating the same old stanzas which causes boredom..

  • Tammy - Friday, June 26, 2009, 12:05AM ET  Report Abuse

    • Overall: 1/5

    We may be in luck. Kiyosucki hasn't posted in nearly 3 months. Maybe Yahoo has finally seen the light and finally dumped this parasitic charlatan. Here's some real advice to you 5 stars.... Get a decent job, save any excess money and invest and diversify !!! You don't need to idolize Robert, cause he's taking you for a ride (Ever see the price of his worthless cash flow game?) Pulleeeeeezzzzzze

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