Rich Dad Scam #1: Higher Education
For this week I wanted to introduce you to the 6 Rich Dad scams. There are all sorts of scam artists in the world. Sometimes we don’t spot them until it’s too late or they make a mistake, like with Bernie Madoff. And sometimes we don’t know we’re being scammed at all because we’re conditioned to think from the cradle that something is the best and right advice for living.
This is the first in a series of posts where I’m going to explore the scams that most people never know about.
Growing up, my highly-educated, but poor dad always said, “Go to school, get good grades, and find a safe secure job.”
My poor dad urged me to become either a well-paid employee, or a well-paid self-employed professional, such as a medical doctor, lawyer, or accountant. My poor dad was very concerned about a steady paycheck, benefits, and job security. That’s why he was a well-paid government official, the head of education for the State of Hawaii.
My rich dad, on the other hand, didn’t have a college degree. Yet he was very successful and very wealthy. Rich dad said, “School teaches you to be an employee. If you want to be rich, don’t count on school.”
From a very young age, I learned that higher education did not translate into success and it was one of the biggest scams around. This scam is the foundation upon which the other scams are built.
How the Scam Starts
If we track the life of an average educated person, the financial script often goes like this:
The child goes to school, graduates, finds a job and soon has some money to spend. The young adult now can afford to rent an apartment, buy electronics, new clothes, new furniture, and, of course, a car. Soon the bills begin to come in.
One day, the adult meets someone special and sparks fly. They fall in love and get married. For a while, life is blissful because two can live as cheaply as one. With only one rent to pay, they can afford to set a few dollars aside to buy the dream of all young couples—their own home.
They find a house, pull their money out of savings and use it for a down payment. Now they have a mortgage. Because they have a new house, they need new furnishings, so they find a furniture store that advertises those magic words: “No money down. Easy monthly payments.”
Life is wonderful, and they throw a party to have all their friends over to see their new house, new car, new furniture, and new toys. They’re already deeply in debt. Then the first child arrives.
After dropping the child off at nursery school, this average couple must now put their nose to the grindstone and go to work. They become trapped by the need for job security simply because, on average, they’re less than three months away from financial bankruptcy. These people will often say, “I can’t afford to quit. I have bills to pay.”
Going to School Doesn’t Make You Wealthy
Because I’m outspoken against the school system, I’m often accused of being anti-education. Nothing could be further from the truth. But “go to college” is one of those things people point at as a way of being successful without ever stopping to think if it’s true.
Every context must be taken into account. For instance, if it’s my desire to be a good employee, I can gain those valuable skills and insights with higher education. However, if it is my desire to learn how to start a business, invest like a pro, and grow my money, I will not learn that in college.
My rich dad taught me this when he started playing Monopoly® with me and his son. My educated poor dad never had time for games. He always told me, “Go read a book.” I didn’t care to read books, but I did love games. Rich dad turned playing Monopoly into an educational opportunity. He passed along the simple formula for wealth: four green houses, one red hotel. This is how I learned the importance of investing in assets and then using the wealth generated from those assets to buy even larger assets. When rich dad taught us this, he didn’t yet have his own hotel, but later in life, following the same formula, he landed one on the beach.
This doesn’t mean that education isn’t important. Most people need the context of a basic education that you get in the K-12 years. It builds an important foundation for all education that comes after. And if you want to be a teacher, a lawyer, or a doctor, then obviously you’re going to need to go to college. I don’t know about you, but I’d never let a surgeon who skipped medical school do a procedure on me, and I wouldn’t rely on a high school graduate to represent me in court. I appreciate their context and the education they needed.
What you won’t learn in school is how money works. That takes a different kind of education. The kind of education you need in order to understand how money works is financial education. American education teaches us to be employees instead of our own bosses. It makes us laborers instead of innovators.
The scam that school will make you a success is perpetrated everywhere and all the time. What will make you rich is not going to school and learning book smarts but rather gaining financial smarts—learning how money works and how to make it work for you.
Choose Your Financial Education Wisely
As a young boy observing both fathers, I began to take mental notes of what kind of life I wanted to lead.
After I was done with my tours of duty in Vietnam, my poor dad encouraged me to get my masters and my PhD. So, I enrolled in an executive MBA class. One of my classes was accounting. In the classroom, I was not enjoying the MBA program. I felt like I was back in high school.
One night, my frustration hit a boiling point.
“Have you ever been a real accountant?” I asked the accounting teacher.
“Yes,” he replied. “I have a degree in accounting.”
“That is not what I am asking you,” I said tersely. “I know you have a degree in accounting, but have you ever been a real accountant… in the real world?”
After an extended pause, the teacher admitted, “No, I haven’t. I am a graduate assistant. I have a bachelor’s degree in accounting. I am going for my master’s.”
“I can tell you don’t know what you’re talking about. You’re teaching from a textbook, not real life.” I had been working with my rich dad as an apprentice and I could see the difference between a fake teacher and a practitioner.
In stark contrast, around the same time, I attended a seminar on real estate investing that was three days long and cost $385. I could tell the person teaching the seminar was the real deal. He was not trying to sell us anything. He was simply running us through his many deals, what he’d learned, and how we could apply those lessons to our own real estate investing.
At the end of the three days, he said, “Ok, now the class is just beginning.” Confused we asked how the end could be the beginning. He said, “Because putting this knowledge into practice in real life is where you will really learn. I want you to evaluate 100 properties in 90 days. Write a one-page analysis on each, and by the end, you will know which is the one you should go after.”
I did this, found a property I could buy with no money down and made $25 a month in cash flow.
I canceled my MBA classes and never looked back.
Editor, Rich Dad Poor Dad Daily