Rich Dad Poor Dad - Why Teach Financial Literacy?

Lesson 2: Why Teach Financial Literacy?

They don’t teach this at school. The growing gap between rich and poor is rooted in the antiquated educational system. The system trains people to be good employees, and not employers. The obsolete school system also fails to provide young people with basic financial skills rich people use to grow their wealth. Know your options and use this knowledge to build a formidable asset column.

In an age of instant millionaires it really isn’t about how much money you make, it’s about how much you keep, and how many generations you can keep it.

Steps to get out of the proverbial rat race:

1. First, understand the difference between an asset and a liability.

Assets Liabilities

· Real Estate · Mortgages

· Stocks · Consumer Loans

· Bonds · Credit Cards

· Notes

· Intellectual Property

The poor have day-to-day expenses, the middle class purchase liabilities that they think are assets (i.e., a home or a car), and the rich build a solid base of income-generating assets. The middle class finds itself in a constant state of financial struggle. Their primary income is wages, as wages increase, so do their taxes. Expenses increase as wages increase. Hence the phrase “the rat race.” They treat their home as their primary asset instead of investing in incomegenerating assets.

The rich get richer because they keep acquiring more assets and investments to generate more income, which far exceeds their expenses.

Reasons why the home is not an asset but a liability:

1. People work almost all their lives to pay off a home (30-year loans)

2. Maintenance and utilities expenses.

3. Property tax

4. House values can depreciate.

5. Instead of investing in income-earning assets, your money goes out to

payments for the house.

Your losses:

1. Time that could have been used to grow value in other assets.

2. Capital which could have been invested rather than paying home-related

expenses

3. Education that makes you a Sophisticated investor If you want to buy a house, first generate the cash flow by acquiring assets, which bring income to pay for it.

Examples of real assets are:

· Apartments for rent

· Real estate

· Businesses that do not require your physical presence. You hire managers.

Average time of holding on to an asset before selling it for a higher value:

1 year

· Stocks (Startups and small companies are good investments)

· Bonds

· Mutual funds

7 years

· Real estate

· Notes (IOUs)

· Royalties on intellectual property

· Valuables that produce income or appreciate

In summary, the key steps to getting out of the rat race are the :

1. Understand the difference between an asset and a liability.

2. Concentrate your efforts on buying income-earning assets.

3. Focus on keeping liabilities and expenses at a minimum.

4. Mind your own business.

Thanks Pradip