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Robert Kiyosaki Why the Rich Get Richer

Robert Kiyosaki, Why the Rich Get Richer

Reading, Writing, and Resisting Debt

by Robert Kiyosaki

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Posted on Monday, January 22, 2007, 12:00AM

When I was young, people lived from paycheck to paycheck. Today, it seems like they live from credit card payment to credit card payment.

Most of us know that millions of Americans are deeply mired in credit card debt. Many financial experts have said repeatedly, "Get out your scissors and cut up your credit cards." While this may sound like good advice, to me it seems like a painful, short-sighted answer to a more complex problem.

That problem is a lack of financial education. Why don't we teach kids about money in school? Rich or poor, smart or not-so-smart, we all use money. Yet, while there are a few schools beginning to offer some financial education, it seems that most educators believe money isn't a subject worthy of the hallowed halls of our learning institutions.

A History of Credit

When I was a kid, there were no credit cards. Instead, retailers offered layaway plans. My mom would go to a store, such as a furniture outlet, choose the sofa she wanted, and put it on layaway. That meant she put a little money down to hold the sofa, and every payday she'd pay a little toward the purchase. When the sofa was paid for in full, she would bring it home.

At that time, stores also offered "buy now, pay later" plans. This meant my mom could buy the sofa, sign a payment agreement, and take the sofa home that day.

Today, while a few stores still offer such plans or even variations of them, most people simply put their purchases on a credit card. But credit has been a part of American life even before there were credit cards.

A Growth Industry

There are many reasons why credit cards have grown in popularity, including these:

• Wall Street has turned debt into an asset.

Today, your friendly banker issues you a credit card. He then sells your debt to a Wall Street firm, which collects your monthly payments at high interest rates -- which is why it's an asset to them.

The minute a Wall Street firm purchases your debt, your bank no longer has it on its financial statement, which then allows the bank to look for more credit card customers. That's one reason why you get so many credit card offers.

• The purchasing power of the dollar has dropped.

If you've followed these columns, you know that in 1971, President Nixon converted the U.S. dollar from money to a currency. That means the U.S. and other governments can print money faster than you can earn it -- or save it.

In terms of purchasing power, if you earned $50,000 in 1996, you would have to earn $100,000 in 2006 just to stay even. Many people aren't earning more even though prices are rising, so they make up the difference by using their credit cards for everyday purchases.

• When wages go up, so do taxes.

Because the purchasing power of the dollar has dropped, many people work harder, ask for raises, or take on extra work (or a second job) to earn more money. And when they earn more money, they move into higher tax brackets.

Today, the alternative minimum tax (AMT) -- first levied in 1970 as a tax against the rich -- is penalizing the middle class. In many ways, the AMT is a form of double taxation. Many working people are now making more money but taking home less because they pay a higher percentage of taxes.

• The cost of retirement has gone up.

When I was young, many people worked for a company with a pension plan that covered them for as long as they lived. If they didn't have a pension plan, they could count on Social Security and Medicare.

That's all changed. Today, millions of workers need to be able to afford their day-to-day living as well as put enough money aside for when they can no longer work.

I Love Credit Cards

Clearly, cutting up credit cards won't address these economic changes or solve America's debt problem.

In the real world, credit cards are essential. It would be extremely difficult to rent a car or make hotel and airline reservations without a credit card. It would also be tough to pick up the tab at a business lunch or shop online without a credit card.

Personally, I love my credit cards because of the financial freedom they allow me, and my life would come to a grinding halt without them.

Fight Debt with Debt

Whenever anyone asks me how to solve the credit card problem, I tell them to fight fire with fire -- and debt with debt. The way I solve my increasing needs for cash is to go deeper into debt -- good debt, not bad debt.

For example, I use debt -- which is essentially tax-free money -- to invest in real estate, which in turn increases my cash flow. Not only do I not pay taxes on my debt, I could also pay no taxes (or very little in taxes) on the income from the debt. Hence I earn more but pay less in taxes.

Obviously, in order to do this you need to know how to use debt wisely and responsibly, and must be able to find great investments that increase cash flow.

The Root of the Problem

Most financial experts will scoff at my "fight debt with debt" approach. They'll say my advice is based on flawed logic, and it may well be -- for most people. But I ask you to step back and take a look at the world of finance. As I stated earlier, Wall Street is able to take your debt and turn it into their asset. That's what financially smart people do, and it's one example of why rich people get richer.

Unfortunately, most people take bad debt and turn it into horrible debt. This is especially true of poor people and people with bad credit, who have access to only the worst forms of debt and pay the highest interest rates on it.

But their problem isn't credit cards -- it's a lack of financial know-how. And at the root of that lack of knowledge is our school system and its archaic curriculum, which is out of touch with the way people really live.

Clearly, advising people to cut up their credit cards won't solve the problem of excessive credit card debt. A pair of scissors won't make anyone financially smarter, but some financial education just might.

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  • Yahoo! Finance User - Wednesday, March 7, 2007, 4:50PM ET  Report Abuse

    • Overall: 1/5

    I read is book Rich man Poor Man. I like it but the advise he gives on here is not that great , but on a whole he never really gives direct advise what people can acually understand and use.

  • Bobo - Monday, March 5, 2007, 10:40PM ET  Report Abuse

    • Overall: 1/5

    That is horrid advice, how about staying away from debt so you don't pay interest? His Wallstreet example is backwards, the bankers loan money not borrow it from the consumers... "Good debt" only happens when you loan money, and you can do that to the Wallstreet by buying bonds or banks by having "savings."

  • Doyle - Monday, March 5, 2007, 4:40PM ET  Report Abuse

    • Overall: 5/5

    Too bad people don't educate themselves so they understand how money can work for you instead of you working for money. Money works 24/7 and it can be OPM.

  • Yahoo! Finance User - Friday, March 2, 2007, 6:58PM ET  Report Abuse

    • Overall: 5/5

    I want to personally thank Robert T. Kyosaki for being bold enough to attempt to tackle the underlying problem of the deteriorating middle class, lack of "financial education." Instead of criticizing his efforts with the mentality that the world is flat, understand that these are lessons he has learned from experience in his endeavors. His books share these lessons as well as his knowledge. Dig a little deeper check out rich dad poor dad.

  • Yahoo! Finance User - Friday, March 2, 2007, 5:19AM ET  Report Abuse

    • Overall: 1/5

    His columns are full of junk economics and vague ideas. He never tells you how he did it because guess what? You can't repeat his formula to get rich. Never worth the time it takes to read them.

  • Yahoo! Finance User - Tuesday, February 27, 2007, 4:28PM ET  Report Abuse

    • Overall: 1/5

    I've read all about "good debt vs. bad debt" philosophy. How about "no debt" and true financial freedom? That's the ultimate plan.......Our schools do little to prepare us to handle finances, true. I think that's why I'm so disturbed by the flippant usage of the "good debt" verbage spouted here. Most folks do not understand how to balance their checking accounts, let alone take on "good debt". Let's be careful in how we "educate" the public.......

  • RUDY - Saturday, February 24, 2007, 9:30AM ET  Report Abuse

    • Overall: 5/5

    Don't believe him? Just check the fruit on the tree!! How does your tree compare?!

  • health1_au - Saturday, February 24, 2007, 3:46AM ET  Report Abuse

    • Overall: 5/5

    It's sad that people don't get it! First, the dollar really has lost that much value - don't go by CPI - they DON'T INCLUDE energy and housing! Oh that's right, you don't have to buy those do you?! Go abroad and see what your dollars can get these days. Plus he teaches that a car and a house are NOT assets, and guess what? Unless you rent the car or house out or otherwise derive regular income by owning them, they are liabilities, because they cost you in things like taxes, insurance and upkeep! Worse, a car is a liability that you pay for that constantly loses some of it's resale value! Finally, there are those that don't get good debt and bad debt. Simple: DEBT IS GREAT IF someone else is paying the interest (and then some) on the debt for you, and/or when it leads to wealth creation for you! What is so hard to understand about that? Rather than slam this writer, READ HIS BOOKS! I did, and through them and others changing how I thought about debt, assets, and money in general, I was able to become free - NO BAD DEBT, passive income, and more.

  • M - Friday, February 23, 2007, 2:50AM ET  Report Abuse

    • Overall: 5/5

    Very helpful info to think about, good debt vs bad debt.

  • William - Wednesday, February 21, 2007, 4:50PM ET  Report Abuse

    • Overall: 1/5

    Kiyosaki is an acquired taste. I can appreciate in moderate doses his entrepreneurial mindsight coaching, but his economics is just garbage, filled with visions of gold and "currency not money" he sets a bad precedent for people interested in finance. For example, this line... In terms of purchasing power, if you earned $50,000 in 1996, you would have to earn $100,000 in 2006 just to stay even. Is really hard to back up. If we go to: http://www.measuringworth.com/calculators/compare/result.php one of many different online inflation calculators, and enter $50,000 from 1995 to 2005 since that's the last year of data, we get: $64,074.80 using the Consumer Price Index $61,198.57 using the GDP deflator $68,668.39 using the unskilled wage $75,732.51 using the nominal GDP per capita $84,186.98 using the relative share of GDP nothing even close to $100,000. You can argue that he was just using round numbers to prove a point. But that's the whole problem, Kiyosaki speaks in generalities and half-truths rather then giving useful *specific* info on how to improve your finances. All in all, not worth the trouble.

  • brad - Tuesday, February 20, 2007, 10:26PM ET  Report Abuse

    • Overall: 5/5

    So many of us are searching for that one piece of advice that is one size fits all. We want to ask should I invest in gold or oil. Real estate vs. Mutual fund. The purpose is to expand our financial literacy not tell you which stock or house to invest in. You can debate the economic numbers but why not take the time to learn about good debt. If you are paying $1000/month on a rental property you are in debt!! However, if your rental income after expenses from that property is $1100/month you are now accumulating wealth. I recommend the books not as tools to direct you what to buy but rather how to recognize for yourself what is a wise investment for yourself. GIVE a boy a fish and he'll eat for a day; TEACH a boy to fish and he'll eat for a lifetime.

  • Yahoo! Finance User - Tuesday, February 20, 2007, 9:22PM ET  Report Abuse

    • Overall: 5/5

    These articles are very useful, and I never miss reading one.

  • John - Tuesday, February 20, 2007, 8:06PM ET  Report Abuse

    • Overall: 5/5

    Thank you Mr. K...I tell everyone I know about your books, especially young people struggling. Bought my first investment property. The appraisal came in at 50%more than the sale price. Now in less than 3 yrs. its worth $1 Mil. ( More than Ive made in my 20 year career and almost tax free. If not for you and your tecahings, I would never retire. God bless you and your family. And thank you.

  • Natural - Tuesday, February 20, 2007, 8:01PM ET  Report Abuse

    • Overall: 2/5

    i get along just fine w/o credit cards. i have a debt card that has a visa logo and i can rent cars and stay in hotels with this card. i cut mine up, but it doesn't address the issue if you have a spending problem

  • Steve - Tuesday, February 20, 2007, 6:30PM ET  Report Abuse

    • Overall: 4/5

    I agree with this Article and Really enjoy Roberts Rich Dad Poor Dads Books. I have a little different perspective as I use credit cards to my advantage. If you have good credit there are many 0% APR no annual fee cards for 12 mos. I financed my business this way. If you already have a balance there are low 2.99 - 4.99% interest balance transfer cards that last for the life of the transfer. This beats a home equity lone at 8.99% even with the tax break. I use www.creditcardwave.com to apply online for these great deals. They also have really great offers on Business Credit Cards. Use them to your advantage to save hundreds in interest and pay off debt quickly.

  • Yahoo! Finance User - Tuesday, February 20, 2007, 11:55AM ET  Report Abuse

    • Overall: 4/5

    Kiyosaki's main thrust of his advice is to become financially educated - i.e., learn how money works - so that you are better equipped to handle money issues. To be able to fight debt with debt, you will need some fundamental understanding of how money and debt works, and be able to read the fine print in the credit card statements - which most people are too lazy to do. So, there are two problems here: people who are too lazy to learn about money, and the credit card companies taking advantage of these financial illiterates.

  • Bryan - Monday, February 19, 2007, 10:20PM ET  Report Abuse

    • Overall: 5/5

    I dig this dude. His ideas are working for me and I'll be ready to retire in a few short years (I'm 40) thanks to his advise (and others). I think he's right, most people don't know how to handle money and the ones that do, really do period.

  • Yahoo! Finance User - Monday, February 19, 2007, 1:53PM ET  Report Abuse

    • Overall: 1/5

    I understand where he's coming from, but it's borderline irresponsible writing this article on Yahoo! where there's a wider range of readers. 99% of people have no business attempting to get out of debt with more debt because they don't understand what he's even talking about. I have no idea why I ever read any of his columns.

  • Yahoo! Finance User - Saturday, February 17, 2007, 12:57PM ET  Report Abuse

    • Overall: 1/5

    Ever had an original thought?

  • SalvatiCORP - Friday, February 16, 2007, 10:23AM ET  Report Abuse

    • Overall: 2/5

    Kiyosaki excels in a aspect that most intellectuals and scholars tend to be less apt in. That aspect is simplifying a financial situation. However, at a certain point of simplification, advice becomes to amorphous and loses its ability to help the reader. The fact of the matter is that you can fight debt with debt. Consolidation of debt via a HELOC is a great move in certain situations, but take for instance an example: David, a father of 2 and college business graduate has "bad" debt of $25,000, at an average APR of 15%. Now to jump the gun and say, "Hey Dave, get a HELOC on your house to get out of debt" would be making a hasty recommendation without getting all the facts. Now surely, Mr. Kiyosaki wouldn't say someone who is a graduated finance major doesn't have financial know-how. The truth of the matter is that Dave is like many other Americans. They have the know how but they lack discipline. All the understanding of financial markets doesn't mean anything if Dave can't say no to his kids when they want everything under the sun or he decides to get the impractical Mercedes as a status symbol. Dave can make all the financial plans in the world, but if he lacks the discipline to follow them to fruition, he will always be "middle class poor". Therein lies the key factor that will bring down any well laid plan: the inability to be disciplined.

  • CHARLES - Tuesday, February 13, 2007, 6:31PM ET  Report Abuse

    • Overall: 3/5

    More people should listen to his advise

  • Yahoo! Finance User - Tuesday, February 13, 2007, 6:11PM ET  Report Abuse

    • Overall: 3/5

    He makes a great point about leverage. But he probably targets to the wrong audience. Those with credit card debt are paying interest on things that do not make them money, ie consumer items, vacations, eating at restaurants. That is to say, they should not be financed since they are neither too large for it to make sense to take out a loan (such as a car loan), nor are there tax advantages (like a mortgage). Using a lot of debt to buy property as an investment is risky, hence the higher return relative to putting more equity into a purchase. If you are not careful, you will lose that equity, or be unable to generate cashflow that will pay off the debt. Maybe I am wrong here, but I think the people carrying a large balance on a credit card are unwise in the ways of managing debt, whether it is consumer debt or leverage used to acquire assets. Again, nothing wrong with this advice, but you won't go from credit cards to real estate tycoon just by surrounding yourself with "good" debt.

  • Carl - Tuesday, February 13, 2007, 3:40PM ET  Report Abuse

    • Overall: 4/5

    Life has taught me that people see and hear what they want to see and hear. No matter the conversation, if people are expecting a certain message that's is what they hear. The same appears to be true concerning Mr. Kiyosaki. We take from his columns what we expect. I find insight, others find misinformation. What Mr. Kiyosaki's articles trigger in my mind is the need for me to take more control over my finances and future. I think many of us, myself included, often float through life following the well trodden path. We do what we're told, believe what others tell us, and go through life hoping for the best. Mr. Kiyosaki's message, as I understand it, is to think on our own. Realize where our money is going, realize why people suggest we handle our money in specific ways, realize that we can control our future but ONLY IF WE UNDERSTAND what is happening around us. Taking control of something can be uncomfortable. It requires thought, it requires action, it requires taking chances. Some people are just not comfortable with that...but that doesn't mean it is wrong. In this article, for example, he scans the surface of his message of good debt versus bad debt. We all know bad debt (cars, personal homes, televisions, etc.), but what is good debt - borrowing to buy something that produces income. Good debt is borrowing money to buy a cash-flow positive apartment building, or a cash flow positive business. Borrow money and have someone else pay it back for you (renters or customers) while giving you some money to live on. Is this easy? No. It's not like putting money into the bank or a mutual fund (previous article), it requires more effort, but it has benefits that a passive investment (bank account or mutual fund) doesn't have. I remember reading another financial writer (sorry, I don't know the person's name) who said, "It's not the amount of money you make, but what you keep." Mr. Kiyosaki is trying to get this message across. There are smarter ways of making money, tax advantaged ways of making money, that allow you to keep and make more money than simply handing your money over to someone else, who needs to make money from your money. Is his advice for everyone? Obviously not from reading some of the comments left here. I'm in the camp where you supply people with information and THEY DECIDE whether or not they can use it. Apparently some commentors believe that the majority of people are ignorant and if you give them information they will use it incorrectly. They believe in censorship. That's sad. As I mentioned when I started my comment, I find value from Mr. Kiyosaki's articles. They provide me with one more angle from which to view my investment dollars. If you don't think his articles have value, then I suggest you try to open your mind to see where his thoughts might make sense or you choose not to read them and allow others to do the same.

  • Yahoo! Finance User - Monday, February 12, 2007, 5:02PM ET  Report Abuse

    • Overall: 5/5

    good ideas to consider for my case. I need money for new construction. Put 20k on credit card or pull it out of home equity. Depends which rates and tax advantages are better. Concrete ideas for me.

  • hhhh - Sunday, February 11, 2007, 1:18PM ET  Report Abuse

    • Overall: 1/5

    I don't know but I would recomend that this guy take a principles of economics course so he can learn how to read the stats. The purchasing power has not lost that much, if that was really true Alan Greenspan and Bernanke would have nightmares. The reason for the debt maybe that wages have remained somewhat stagnant as you know they have not raised the minimum wage. As far as taxes go you should always try to earn more unless you are taxed at 100%, because if you earn $10,000 more a year and if you are taxed say at 40% which is propably higher than reality you would still end up $6000 better. You talk how to be succesfull investor you need simple math but seems like you don't have any. Above all please make sure get your numbers straight so I know it was not written by some 3 year old. I have no problem with people that do not understand things as long as they don't seem so, but trying to say something that is anything but something really insults my "intelligence" and above all my "integrity".

  • Yahoo! Finance User - Friday, February 9, 2007, 10:50PM ET  Report Abuse

    • Overall: 5/5

    Personally, I have invested wisely in real estate, so I can see what Robert is trying to say. The fact that many of you think he is useless just proves his point - that more education about finance is needed. "Good Debt" is debt that is tax-deductible, and is attached to an asset that increases in value, or even makes you rent every month, as in real estate. "Bad Debt" is debt that you pay and you get nothing, such as a credit card.

  • William - Friday, February 9, 2007, 6:23PM ET  Report Abuse

    • Overall: 1/5

    Fight debt with debt? That reminds me of people who transfer debt to cheaper credit cards, only to maintain their irresponsible spending habits. Someone need to get this guy off Yahoo. This site is one of the best educational resources on the web and he is a stain.

  • Yahoo! Finance User - Thursday, February 8, 2007, 2:39PM ET  Report Abuse

    • Overall: 1/5

    Here is another example of Mr. Kiyosaki's horrible, vague, smug, advise. You fight debt with discipline and self-control, not with more borrowing that you talk yourself into believing is beneficial. Many people go into debt because they think that they are making themselves (and their loved ones) better off - this is usually wrong. Please do not listen to this man - he has been shown many times to use incorrect data (or even outright lying), faulty reasoning, and unrealistic methods (if you are not already rich). I would rather believe the Ph.D. Economists at the Fed than this guy. The only thing that is worse than his articles are his books! Stay away for your own good!

  • Yahoo! Finance User - Thursday, February 8, 2007, 2:17PM ET  Report Abuse

    • Overall: 5/5

    Well, this article is not intended to be dangerous. It's all in the mind set of one's thinking that can either hurt you or help you. I think your idea of reality ultimately will determine if this article is helpful! As I do!

  • Alex - Thursday, February 8, 2007, 3:01AM ET  Report Abuse

    • Overall: 1/5

    Solve bad debt with good debt? That sounds more like too much debt, which would equal bad credit and bankruptcy. Yahoo please get this quack to stop writing columns!

Showing comments 6-35 of 313<< PreviousNext >>
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