Understanding Financial Literacy: Robert Kiyosaki’s Insights for Millennials
In a recent engaging discussion, financial educator Robert Kiyosaki shared valuable lessons on money management with Alexa, the daughter of a dear friend. The conversation focused on the financial challenges faced by millennials and the importance of understanding assets and liabilities.
The Misconception of Home Ownership
Kiyosaki began by addressing a common misconception: the belief that a house is an asset. “When you read ‘Rich Dad Poor Dad,’ I mentioned that your house is not an asset. What did you think?” he asked Alexa. She responded, acknowledging that many people hold this belief, but pointed out how her mother had successfully converted her properties into assets.
Kiyosaki agreed, emphasizing that it ultimately depends on how one manages their property. “It’s crucial to understand how to turn your house into an asset,” he stated. He explained that financial education starts with understanding financial statements, a concept that many college graduates overlook. “I would say probably 95 percent of all college graduates don’t know what a financial statement is,” he noted.
The Basics of Financial Literacy
Kiyosaki introduced six fundamental terms essential for financial literacy: income, expense, asset, liability, and cash flow. He explained that while many people focus on their FICO scores, which merely indicate trustworthiness in borrowing, true financial success lies in controlling cash flow. “The secret to being rich is not a college education, but can you control cash flow,” he asserted.
He illustrated the cash flow patterns of different financial classes. For instance, he described the poor person’s cash flow pattern, where income comes in but quickly flows out through expenses, primarily taxes. “Most people, regardless of their education level, struggle to control their cash flow,” he explained.
The Middle-Class Perspective
Kiyosaki then shifted the focus to the middle class, highlighting a common mistake: purchasing larger homes after receiving pay raises. “Many believe that their house is an asset, but who tells you that? Your real estate agent, of course!” he quipped. He pointed out that while people may think they own an asset, their homes often become liabilities due to ongoing expenses like mortgages, taxes, and maintenance.
He shared his own experience of buying his first property at 25, which he rented out to generate income. “The definition of an asset and liability is not just about the property itself; it’s about cash flow. Where is the cash flowing?” he emphasized.
The Reality of Financial Intelligence
Kiyosaki stressed that financial intelligence is the ability to control cash flow, a skill not taught in traditional education. He warned that many young people, including professional athletes, often find themselves broke within a few years due to their inability to manage cash flow effectively.
He explained that while college degrees are important, they do not guarantee financial success. “The cash flow game trains you to get your money in and control cash flow,” he said, sharing his own journey of starting with a small investment that generated positive cash flow.
The Cost of Family and Relationships
The conversation took a more personal turn as Kiyosaki discussed the financial implications of family and relationships. He posed a thought-provoking question: “Can people be assets or liabilities?” Alexa responded that they could be both. Kiyosaki elaborated, noting that children, while loved, are often financial liabilities due to their ongoing costs.
He also highlighted the potential financial burden of caring for aging family members. “As people get older, family members can become liabilities,” he warned. He shared a story about a friend facing significant costs for his mother’s long-term care, emphasizing the importance of planning for such expenses.
The Importance of Financial Planning
Kiyosaki cautioned that many people fail to consider the long-term financial implications of their relationships and family responsibilities. He pointed out that statistics show a significant portion of wealth is depleted in the final years of life due to medical expenses. “Most people don’t realize that as they age, their family members can become financial burdens,” he said.
He also discussed the impact of poor financial advice, stating that bad advisors or partners can lead to significant financial losses. “I have friends who have lost millions due to bad relationships,” he noted, illustrating the importance of surrounding oneself with the right people.
Conclusion: Mastering Financial Literacy
In closing, Kiyosaki reiterated the six essential words for financial intelligence: income, expense, asset, liability, and cash flow. He encouraged millennials to focus on these concepts to achieve financial success. “If you can control cash flow, that’s financial intelligence,” he concluded.
Alexa expressed her gratitude for the insights shared, recognizing their value for her and her peers. Kiyosaki’s message serves as a powerful reminder for young individuals to prioritize financial education and make informed decisions about their money, relationships, and future.