I was recommended the book by someone whose business success I highly respect. To his credit, he willingly identified several flaws but recommended it on the balance. I’m a fan of reading things I don’t necessarily believe, so I was willing to push through the huge amount of criticism online to give the book a shot.
To get this out of the way first: Basically all that criticism is warranted. (But keep reading, there’s more!)
I found it valuable to interpret the book as more of an inspiring parable than a specific source of actual literal facts. The whole spirit is best summed up by a short section towards the end where he advocates putting your income into investments before you put it towards your bills. Of course, he says, you must also pay your bills, but you should use the anxiety of falling short for motivation to work harder, earning more, investing more, and ultimately making all of your income from dividends.
This arbitrary rearrangement of two things, both of which you are going to do anyway, is both logically inane and emotionally powerful. It’s a visceral way to put investment on the top of your mind, along with some of the other things he advocates like following a few businesspeople alongside your sports heroes, and talking frankly with friends about your financial goals and strategies.
Probably the strongest concept in the book is a move away from her thinking of “financial literacy“ as just “make sure you are not spending more than you save each month”. It has to extends to how you are handling the accumulated excess. The book argues that once you get smart enough, you’ll see investment options even better than just putting it in a broad index fund (though that would have more than doubled since the book was published). It doesn’t go in depth on any of those options besides real estate, which is a huge weakness (but I’m staying positive here!)
Abstractly speaking, investing means buying productive assets that create value on a regular basis. In the best case, it does so without any effort on your part and without any risk of losing value. As you get further from conventional asset classes like stocks and bonds, I think opportunities meeting those criteria become rare. But that feeds into one of the most underrated lessons of the book: The importance of learning sales skills for opening up entirely new opportunities to invest. After all, after your asset spits out some value, someone (probably you!) needs to find someone who will actually pay you cash for it.
If you’re willing to do the work to evaluate assets, and then find buyers for their output, you stand a chance to evade the economist’s dollar bill paradox. The book provides the inspiration to build the skills and pound the pavement to make that happen. Orchestrating the flow of resources and labor is basically the economic definition of a business, which aligns naturally with the book’s encouragement that everybody should incorporate a legal entity around their investment activities.
He mentions the value of teaching financial skills with games and simulations as opposed to lectures. I am sympathetic to that idea, given that conventional financial literacy classes are almost completely useless (EDIT: and 1/3rd of fees paid by low-literacy Americans could have been easily avoided)
I promised not to disparage the book (and I hope that we’re all appreciating how many times I’ve had to delete a sentence because of that promise), but I do have to take a respectful but direct stand against one pair of intertwined themes: The devaluation of specialized education and of income earned as wages.
In fact, the legendary 1 Percenters, who we’ll use as shorthand for “rich”, are often highly educated working professionals. They are not living off of the rent of some valuable estate like a English aristocrat. They are living off of the rent of their valuable education and credentials, their Human Capital. It is a less tangible asset, and doesn’t do as well on Instagram, but by far the more common way to be affluent in modern America. (EDIT: For people who don’t mind numbers, including high salaries, I’ve fleshed this argument out here)
Also, there is something to be said for actually personally producing value each day, but as that is not the thrust of the book I will continue focusing this review raking in the dollah dollah bills.
Shockingly, even many wealthy small business founders are a mixture of owners and highly skilled employees. They have successfully invested in the business, but its value is still tied to their active involvement, as shown in this fascinating paper. No seriously, this is based on an analysis of 11 million Rich Dads (and Moms and those without children), analyzed by the US Treasury department, UC Bekeley Chicago Business School and Princeton. Here, I’ll link it again.
I’ll leave it there and get to bed. Then I can resume making money while I sleep!