Trump & Kiyosaki: Financial Education for the Ages
In 2006, Donald and I came out with our first book together, Why We Want You To Be Rich. We wrote the book because we are concerned with the collapse of the middle class in America. We stated that bad investments and mismanagement of our government were destroying the lives of many people.
We wrote about the coming economic crisis and what people could do to not be victims of the crisis. We wrote about inflation making the lives of millions of people more difficult. And we endorsed the idea of financial education as one way to get out of the crisis.
We chose to co-author books because we are both educators, we both had rich dads, and we are concerned about the quality of education in America today. We believe real financial education must be made available to all students.
I am incredibly lucky to have co-authored two books with the President of the United States, and I think the biggest commonality between the President and myself is that we both see financial education as the most important thing one can do for themselves.
I’ve said it before, the government can’t save anyone, but a financial education can.
The Power of Debt
One reason why the rich grow richer is that they use debt to become richer. Unfortunately, without financial education, debt makes the poor and middle class poorer.
Donald Trump summed it up, saying: “You know I am the king of debt. I love debt, but debt is tricky and it is dangerous.”
One reason is that the economy grows when you and I create money by borrowing money. When you pay off your debt, the economy gets smaller.
So, how does a person learn to use debt as money? I’ll start with a story you may have heard before.
In 1973, the year I returned to Hawaii from Vietnam, my poor dad suggested I go to graduate school to get my MBA. My rich dad suggested I learn to invest in real estate. My poor dad encouraged me to become a high-paid employee in the E quadrant. My rich dad encouraged me to be a professional investor in the I quadrant.
While watching television one day, an infomercial came on advertising a free seminar on investing in real estate. I attended the free seminar, liked what I heard, and invested $385 for a three-day course. That $385 was a lot of money at the time because I was still in the Marine Corps and not making much money.
The three-day program was great. The instructor was real—a rich, experienced, and successful investor who loved to teach. I learned a lot from him. At the end of the program, the instructor gave me some of the best advice I have ever received. He said, “Your education begins when you leave the class.”
His assignment was for all of us to get together in groups of three to five students to look at and write an evaluation of 100 properties that were for sale. He gave us 90 days to complete the assignment. He didn’t want us to buy anything, or invest any money, for at least 90 days.
After 90 days of looking at and writing one-page evaluations on 100 properties, I identified my first real estate investment opportunity.
It was a 1-bedroom/1-bath condominium, next to the beach on the island of Maui. The entire development was in foreclosure and the price for the condo was $18,000. The seller was offering 90% financing.
All I had to do was come up with $1,800 for a 10% down payment. I handed the real estate broker my credit card for the down payment and the property was mine. I purchased my first investment property with 100% OPM—Other People’s Money. I had none of my own money in the investment.
At the end of every month, after all the expenses were paid, including debt service and management fees, the property put approximately $25 in my pocket, an infinite return on my investment. It was an infinite return because I didn’t have any of my own money in the deal.
While $25 a month is not a lot of money, the lessons learned have proven to be priceless. One of the lessons learned was that debt is money and the other lesson was debt is tax-free.
You must be very careful with debt. It takes financial education to learn how to use debt to get rich. Debt is a double-edged sword. Debt can make you rich and then, suddenly, something changes and that same debt is making you poor, very poor.
That is why Kim and I created the CASHFLOW® board game. It is the only financial education game that encourages players to use debt to win the game.
The Power of Expanding Your Means
Living below your means is the idea that you should not spend more money than you bring in each month. It is the kissing cousin of the scams, “Get out of debt” and “Save money.”
Some so-called financial gurus advocate for eliminating your debt and creating a small budget to live on, sticking with it even when you get a raise or a bonus and saving that money. As the thinking goes by those so-called experts, the reason why many people are poor is that they cannot control their spending. As soon as they get their paycheck, they go on a shopping spree, spending it all on things like clothes, cars, and more. The only way to stop this cycle of financial destruction is to live below your means.
On the surface, it makes sense. You shouldn’t outspend your income on things like liabilities. That’s a core philosophy of Rich Dad as well. But the idea of “live below your means” is a soul-crushing idea. Only poor people live below their means. The rich don’t live below their means. Rather, they expand their means.
When my wife and I want to splurge on something, we don’t look at where to cut costs. Instead, we acquire an asset to offset the cost of what we want. So, instead of always looking for what we can cut to afford something, we’re always looking to expand our means to cover the cost of what we want. It’s a completely different mindset, given to me by my rich dad.
The Power of Financial Education
There is financial education for the poor and middle class. And, on the other side of the coin, there is financial education for the rich. True financial education must explain the big picture of the banking system. The banking system is a system of savers and debtors.
This is why most bank credit cards offer free travel, or cashback, and other “perks,” to encourage people to get into debt. The banks make money from debtors, not savers. After the 2007 real estate mortgage crash, credit cards became the number-one source of income for many banks.
My poor dad used debt to buy his house and car. That’s bad debt. Bad debt buys liabilities. Bad debt is the debt you have to pay for. Rich dad used debt to buy investment properties and grow his business. That’s good debt, and as I explained good debt makes you richer. Good debt is debt someone else pays for. Governments give tax breaks to people who know how to use good debt.
The world banking system is built on the Fractional Reserve Banking System. This means that for every dollar a saver puts in the bank, the bank can lend a multiple of that dollar to debtors. For example, if the fractional reserve is 10, that means the bank can lend $10 for every $1 a saver deposits. If inflation is too high, the Central Bank (such as the Federal Reserve in the United States) can use its tools to effectively lower the fraction a bank can lend to, let’s say, 5… with only $5 dollars available to the bank to lend for every $1 deposited by a saver.
When banks lower interest rates as they are doing today, they are saying, “We do not want savers. We want debtors.” Low-interest rates on savings are forcing the middle class into the stock market and real estate markets, hoping for a better return on their money. The middle class is chasing “bubbles” in financial markets. If the bubbles burst, many in the middle class may lose everything.
Low-interest rates send this message: “Please come and borrow money. Money is on sale.”
For the rich, low-interest rates make it easier to get richer. For the poor and middle class, especially savers, low-interest rates spell financial disaster.
This is one example of the importance of having a financial education. And as with many things in life, financial education is a process but if you can understand and explain these principles and ideas, you are on your way to becoming a financial genius.
Editor, Rich Dad Poor Dad Daily