Poor Man's Prophet Robert Kiyosaki, author of Rich Dad, Poor Dad says that everything you've been told about money is a lie. Is his vision setting us on the right track--or is it just more financial snake oil?
(MONEY Magazine) – The theater at Madison Square Garden, located beneath the famous New York arena, is a 5,600-seat venue that has played host to boxing matches, trade shows and numerous second-tier rock groups. One Tuesday night this past fall the attraction was Robert Kiyosaki, author of Rich Dad, Poor Dad, a financial self-help book now in its third year on the New York Times paperback bestseller list. For a solid three hours, standing in front of a table laden with purple and gold Rich Dad merchandise, the 55-year-old Kiyosaki told a full house of paying customers that most of what they thought they knew about money and finance was wrong.
A job with good benefits and a 401(k)? Strictly for suckers.
The stock market? A bomb waiting to go off.
Diversification? Worse than useless.
Home ownership? A black hole sucking cash out of your wallet. And the only real shot at financial freedom and a decent retirement? Starting your own business and/or investing in real estate. "You're trying to save your way out of the poorhouse, and that's not the way to do it," he told the enthusiastic crowd. "You need leverage."
Or, if his program sounded too hard or risky, Kiyosaki told his listeners they could just keep on doing what their parents, financial advisers and mutual fund companies have been telling them to do. And we know how that's worked out.
Kiyosaki got his biggest reaction of the night with an impression of what it's recently been like being a long-term stockholder--someone who practices the kind of investing that, generally speaking, MONEY advocates but that Kiyosaki likes to deride as "buy, hold and pray." He grabbed the controls of an imaginary airplane, pointed its nose toward the ground and shook violently. And then he began screaming "YAAAAA! yAAAAAAA!"
The crowd loved it--so much so that Kiyosaki couldn't help but do it again a few minutes later. After the show, the Rich Dad vendors in the lobby were doing land-office business.
Robert Kiyosaki is striking a nerve. The stock market is in the tank and increasingly desperate investors are looking to alternatives--bonds! gold! anything!--to ease the pain. Real estate is high on that list. There has never been a shortage of real estate gurus, guys on late-night TV telling you how you can get rich with "no money down." But Kiyosaki alone has seized both the resurgent interest in real estate and the backlash against conventional personal-finance wisdom. Rich Dad, Poor Dad, written by Kiyosaki and his business partner, Sharon Lechter, has sold 3.5 million copies in the U.S. since they first published it themselves in 1998. After it took off, boosted in large part by its popularity with Amway distributors, Kiyosaki made a deal with Warner Books (which, like MONEY, is owned by AOL TimeWarner). The book has since been translated into 30 languages and spawned a whole line of Rich Dad books, videos, audio cassettes, newsletters, infomercials and seminars. There's even a Rich Dad board game called Cashflow. The latest book, Rich Dad's Prophecy, was published last spring and forecasts a major stock market collapse sometime in the next several years, as baby boomers begin to retire in huge numbers and take their money out of their 401(k)s. (See "Kiyosaki's Latest" on page 85.)
There's no question that Kiyosaki's message has resonated big time. But has he really found the secret sauce that can make anyone rich--or is he just a shrewd marketer who's put a tired old real estate spiel into a shiny new purple package?
ALL ABOUT ATTITUDE
In person Kiyosaki is a mostly pleasant, regular guy, a big, Scotch-drinking former Marine who played rugby in his youth. Kiyosaki admits there's not a lot of financial beef in Rich Dad, Poor Dad and agrees that the book is more inspirational than practical. "It's just a book about accounting. That's all it is," he says. The book's financial substance mostly consists of an explanation of the difference between an asset ("something that puts money in my pocket") and a liability ("something that takes money out of my pocket"). In Kiyosaki's reckoning, rich people use their money to buy assets (businesses, revenue-generating real estate); poor people buy liabilities (homes with mortgages, cars with loan payments and the like). The real difference between rich and poor is one of financial education--which Kiyosaki laments is not taught in our schools--and attitude. Rich people, he writes, are creative risk-takers; poor people, timid conformists.
Rich Dad, Poor Dad isn't original, drawing its general "unleash the giant within" philosophy from such self-help classics as Napoleon Hill's 1937 Think and Grow Rich and George S. Clason's 1926 The Richest Man in Babylon. It's also repetitious and crammed with unhelpful diagrams.
What has made it a hit is the parable of the title. Poor Dad was Kiyosaki's late father Ralph, a one-time superintendent of public schools for the State of Hawaii and, in the early 1970s, a Republican candidate for lieutenant governor. He was a well-known and respected figure in Hilo, Hawaii where Kiyosaki grew up. Rich Dad was the father of a childhood friend who made money in hotels, restaurants and construction. In the story, a personal-finance version of Shane, these very different men begin a battle for young Robert's soul when, at age nine, he decides he wants to make some money. He gets no useful advice from his father so he turns to his friend's dad, whom Robert's father views with suspicion. Gruff Rich Dad puts Robert through a series of baffling object lessons, like dusting cans in a grocery store he owns for a miserly 10[cents] an hour. The moral: 9-to-5 jobs are for suckers; winners own the store and have the suckers work for them. Finally, in a reversal of the usual prodigal-son Hollywood ending, Robert doesn't return to the bosom of his strictly-from-Squaresville real dad who's forever telling him to stay in school and get a good job. Instead he decides to go out riding the entrepreneurial ranges, Rich Dad-style.
After numerous travails, including nearly flunking out of high school, a stint in Vietnam, business failure, bankruptcy and (one of Kiyosaki's favorite anecdotes) a spell living in his car, the story ends happily: Adult Robert masters the time-honored technique of buying distressed real estate cheap, first in Oregon and then in Arizona; gets rich; retires; and winds up living large in Phoenix, where he owns a home in an expensive private development with his glamorous second wife and business partner Kim.
A photo of Kiyosaki and his wife graces the back cover of subsequent Rich Dad books and tells you all you need to know about whether he thinks he picked the right dad. The beaming couple ride horses along a magnificent beach. Poor Dad, by contrast, is said to have died disappointed and nearly broke. Kiyosaki pays lip service to his father's virtues and accomplishments, but in the book he comes off as a book-smart loser, well-meaning but ineffectual.
REVENGE OF THE C STUDENT
Kiyosaki's whole oeuvre contains an undercurrent of anger: at his dad, at schools that taught him nothing about the real problems of money, at the critics and doubters who discouraged him in his struggles to get rich. Randy Craft, an old but now estranged friend, says, "He's a brutal and intense and sincere individual. He's hotheaded.... He believes so strongly in what he thinks. You don't agree, he doesn't want you around."
Not that Kiyosaki would ever put things so bluntly--at least as far as his father is concerned. "I am angry at the school system," he wrote me in an e-mail message, "[but] I would not say I am angry at Poor Dad, as I'm carrying on his work as an educator, albeit outside the traditional school system." Be that as it may, it is in large measure the book's tacit endorsement of a belief that "they" are cheating you out of the life you really deserve that makes Kiyosaki's message compelling. Who doesn't at some time feel that their parents or teachers failed them? And how many sons and daughters of the middle class think our parents ever taught us anything worth knowing about money?
That feeling of betrayal has become more generalized in the past few years as the market has caved in and all the people who were supposed to be looking out for us--politicians, brokers, fund managers, CEOs--let us down.
Kiyosaki, who likes to refer to himself as "lazy" and "a C student," is in effect enacting our revenge via his own oedipal minidrama. During his show in New York, he brought several of his lawyers and accountants onstage, mainly to hype a "Rich Dad's Advisors" show scheduled for later in the week. He introduced them as "A students." The point was hard to miss. He nearly flunked out of high school, but here he was 30-some-odd years later, and all the eggheads were now working hard to make him rich.
MONEY AND YOU
Kiyosaki holds himself up as an example, so it's natural to wonder if he really succeeded as described in his books--or whether the books are his one real success. He is secretive about his real estate dealings and his business in general. When I flew to Phoenix to meet Kiyosaki, he and his wife drove me around, showing me a handful of properties he claimed to own, but insisted that their addresses not be printed. (His reason: fear of nuisance lawsuits by tenants.) Public records in Arizona show that he has profitably bought and sold other properties in the area, on a relatively modest scale. He can afford a handsome home in a swank section of Phoenix--bought in 1999 for $1.2 million--and he's got a couple of cars in his garage, one of which is a Ferrari. He lives well, although he's not in the same league with, for example, a local real estate heavyweight like Jerry Colangelo, owner of the Phoenix Suns.
"I'm a real estate guy," is how Kiyosaki responds when asked what his profession is. But he's also been in another business--motivational speaking--for more than 20 years, though this fact gets only a passing mention in Rich Dad. He began lecturing and leading seminars in the early 1980s, when he was first a student and then an instructor with a San Diego outfit now called Excellerated Business Schools. It offered (and still does) a 3 1/2-day program called Money and You, the creation of an attorney named Marshall Thurber who is a protege of Werner Erhard, founder of EST.
During the 1970s EST was a prominent and controversial part of the American cultural landscape. Enthusiastic graduates say it improved their lives by forcing them to break with old habits and ways of thinking; others say it was an authoritarian cult that charged them money for the privilege of being publicly browbeaten for failing to "get it."
Thurber built some EST ideas and techniques (as well as some of those of Erhard's sometime collaborator, the engineer and social theorist Buckminster Fuller) into his Money and You program, including unconventional "accelerated" learning techniques that involved games. Kiyosaki, who did EST training himself in 1974, was "a very, very good student," according to Thurber. In 1984 Thurber left the operation in the hands of Kiyosaki and a woman named D.C. Cordova. Together they expanded the business, bringing Money and You as far afield as Australia, where it found a ready audience that included the Fire Brigade of New South Wales, which sent its managers to take the course.
Everything was going fine until October 1993, when an Australian TV news magazine called Four Corners aired a report on Money and You. The main focus was on an Australian attorney who said that after taking the course his life had become a shambles, his business ruined, his marriage wrecked. Other graduates of the program were taped saying they'd been disturbed by learning techniques like the Blocks Game, an exercise in which participants competed to model abstractions like "trust" using only children's building blocks. The game could go on for hours and frustrations could run high. "We got to a stage where virtually everybody in the hall at one stage was crying," one participant told Four Corners. "Some of them were on the verge of a nervous breakdown.... You start losing sight of your own values and your own convictions."
David Millikan, the program's reporter, says the show nearly killed Money and You in Australia. The Fire Brigade of New South Wales dropped the program and other business dried up. Kiyosaki was furious and considered filing suit against the Australian Broadcasting Corp. but thought better of it. "I definitely thought it was unfair," he now says. "It was 10% accurate and 90% sensationalized and slanderous."
The following year, 1994, Kiyosaki left Excellerated. He says that the move had nothing to do with the Four Corners fiasco, only "differences" with the rest of Excellerated's management. By the time of the split, Kiyosaki says, he'd made enough money in real estate to retire to Phoenix, which by then was his home. There he began assembling the book that made him a star.
WHO IS RICH DAD?
So is the Rich Dad story just another seminar gimmick, a motivational tool Kiyosaki drummed up? Some of his critics think so. Kiyosaki, though, agreed to put me in touch with the son of Rich Dad, on the condition the family name not be printed. Why the secrecy? Ki- yosaki says he promised Rich Dad not to identify him publicly. I did speak to a Hawaii businessman who knew Kiyosaki as a boy in Hilo and who says his father is the real Rich Dad. He too asked that his family's name not be used.
As for Poor Dad, Kiyosaki has been criticized by, among others, his first wife for portraying his accomplished father as a failure. "In my mind he was not the Poor Dad. His spirit and heart were rich," she wrote to a Hawaii business magazine in August 2002. (She didn't respond to my calls.)
All of which probably proves nothing and is secondary to the real question, which is: Can the people who buy into Kiyosaki's philosophy reasonably expect to make money following the advice of Rich Dad--whether or not he ever really existed? Kiyosaki's numerous fans say emphatically yes. Planners and other financial pros are much more skeptical.
The question is actually hard to answer, because the advice in Rich Dad, Poor Dad tends to be so general that it's often hard to figure out just what it is, let alone whether it's sound. Kiyosaki is given to saying things like "Pay yourself first"--a line that appears in virtually every financial self-help book. Or: "The poor and middle class work for money. The rich have money work for them." True as that may be, you won't find it of much practical help in getting out of debt, say, or trying to invest prudently for your kids' education. But criticizing Rich Dad, Poor Dad for lack of detail may miss the point. Its purpose is to inspire--and to plug Rich Dad's Guide to Investing, Real Estate Riches and the rest of the Rich Dad line.
As for Kiyosaki's recommendation that investing in real estate is the way to go, there's no question that shrewd real estate investors can and do make money all the time. It is not, however, as easy as Kiyosaki makes it sound. Rich Dad, Poor Dad does contain boilerplate acknowledgments of the risks involved, and Kiyosaki does advise readers to start slow and make their inevitable mistakes on small deals. But the tone of the book is also unfailingly boosterish, with reassuring statements like "Anyone with a high school education can do it."
More revealing may be Kiyosaki's attitude toward risk. In Rich Dad, Poor Dad Kiyosaki writes that whenever Rich Dad was nervous about a pending business deal he took inspiration from people he had met in Texas. Quoth Rich Dad: "Texans don't bury their failures. They get inspired by them. They take their failures and turn them into rallying cries." The Alamo was the scene of a massacre, for example, a massive military failure that nonetheless became a symbol of Texan pride and resolve. Kiyosaki himself adds, "Failure inspires winners. And failure defeats losers."
Kiyosaki denies that he soft-pedals risk, arguing that the stock market is far more dangerous than the Rich Dad way. Nonetheless, his philosophy is one that requires adherents to bet big and roll the dice. Which is fine if you are emotionally wired for it and, say, willing (like Kiyosaki) to live in your car while attending the school of hard knocks. But it offers little guidance for more timid souls--or those of us who, unlike Kiyosaki, have kids to think about--who are apt to take on less risk and thus forgo a shot at the house with a pool and the Ferrari.
"COME ON, BE A MAN!"
In his latest book, Rich Dad's Prophecy, Kiyosaki ups the ante considerably. Given his prediction of a coming stock market meltdown, he argues that you no longer really have a choice about whether to take Rich Dad's advice or not. If you don't want to spend your golden years on the streets, he all but says, you're going to have to get out of the stock market and put your money into things like real estate.
During my visit to Rich Dad headquarters, which is located in a small Scottsdale, Ariz. office park, several of Kiyosaki's extremely friendly and helpful staffers, as well as one of his business associates--a guy named Richard Tan, who promotes speaking engagements in Singapore--helped me stagger through a round of Cashflow, the Rich Dad board game, which involves reading financial statements and focusing your attention on the difference between an asset and a liability. Each player gets a profession, a monthly salary and a set of expenses to meet. The object is to make enough money investing (mainly in real estate) to have more cash coming in than you have going out and thus escape the "rat race."
I was a doctor with two kids, which meant a big income but also big expenses. I wheeled and dealed as best I could but still wound up just about breaking even. As I dithered over various investments, Tan taunted me good-naturedly. "Come on, be a man," he said, which seemed in some ways to be the real lesson of the game.
Afterward, Kiyosaki debriefed and flattered me. "You were more aggressive than most people playing for the first time," he said, smiling broadly. High praise. But of course, I could afford to be aggressive. It was only play money.