Rich Dad Lesson #2: Why Teach Financial Literacy?
“Money only accentuates the cash flow pattern running in your head. If your pattern is to spend everything you get, most likely an increase in cash will just result in an increase in spending.” Robert T Kiyosaki Rich Dad Poor Dad
Everything must have a beginning. And this is your start to financial education! Children must learn a few words at a time, and then one day they are saying full sentences. We must learn to craw then walk, so we can run when it comes time for us to take off. WHY TEACH FINANCIAL EDUCATION?
Whatever answer you come up with for yourself I will tell you mine. I chose in 1997 to take control of my life. I did not want to work hard all my life and end up with nothing. Now I am married and have a young daughter. I want my wife to have a better life, and I want my daughter to grow up having the things I never had. More importantly I don’t want my child to go thru the financial hardships I did.
On a quick side note I told my wife that our daughter will go to school with a lot of investments. She is currently making $3.65 a month on a small $552 dollars invested. This is $43.80 per year, and she has not had to work for any of this yet. She is only 16 months old and has 10 words in her vocabulary. I tell you this because it only takes a little bit of money to get started, if you put it to work earning more! Outside of some birthday money and a onetime gift of $250 the rest of this $552 has been built over time with as little as $10 a month.
UPDATE 2018: After five years of putting away $10 a month, and $50 for birthdays and Christmas. My daughter is now earning over $16.00 a month. That is over $192 per year in dividends!
Now for you most important two words you must learn: Asset and Liability
Per Dictionary.com the magic terms are listed here.
as·set [as-et] noun
1. a useful and desirable thing or quality: Organizational ability is an asset.
2. a single item of ownership having exchange value.
3. assets, a.items of ownership convertible into cash; total resources of a person or business, as cash, notes and accounts receivable, securities, inventories, goodwill,fixtures, machinery, or real estate ( opposed to liabilities).
li·a·bil·i·ty [lahy-uh–bil-i-tee] noun, plural li·a·bil·i·ties.
a. moneys owed; debts or pecuniary obligations (opposed to assets).
b. Accounting. liabilities as detailed on a sheet, especially in relation to assets and capital.
I want you to take the very simple Rich Dad Poor Dad explanation of assets and liabilities and use this as your new reality.
RICH DAD Asset: anything that puts money into your pocket.
RICH DAD Liability: anything that takes money out of your pocket.
This simple way of looking at things will help keep things easy to remember. Your education must be taught in small stages. The world of finances is large and complicated many people get lost or fed up with so much information. This base line knowledge allows anyone to understand the way to classify their items. Now take a few minutes to list out things you have in your life on a blank sheet of paper. Draw a line down the center. Write Assets on the top left of the paper, and Liabilities on the top right of the paper. List everything you have, all assets and all liabilities.
Personal loans (money lent out
Car and Car Loan
This is a simple list of assets and liabilities, and you may have noticed that the personal home is in the liability column. This is the biggest issue that Robert Kiyosaki was ridiculed for in his book Rich Dad Poor Dad. You must have heard about the housing bubble, and the housing crash after the bubble popped. This has been a very tough situation for many people, and if the masses had a financial education then maybe the banking fat cats could not sell us bad investments. If people truly knew the difference between assets and liabilities, at least one can hope it could have prevented some of the bad investments in recent years.
My personal home is a liability! Don’t get me wrong I love where I live, but I don’t consider it to be an asset. I spend money on a mortgage, on stuff to take care of my lawn, on flowers every year, and let’s not forget about the power and gas bill. My personal home only takes money out of my pocket, so it cannot be an asset, only a liability. You must change the way you view your life. You are learning something new.
Why teach financial literacy? Do you think that the housing bubble would have happened if all the people knew the difference in an asset or a liability? The true test of you newly expanded financial education is to see what things truly are and buy assets not liabilities. If you can consciously stop to think about your purchases and say, “Will this put money into my pocket, or will it eventually take money out of my pocket?” There is a path to wealth, and all you must do is find it, learn it, and follow it!
STEP THREE: Know the difference in an ASSET and LIABILITY