Robert Kiyosaki: Increase Your Financial IQ

21/10/2016, 1(49 PM

Robert Kiyosaki: Increase Your Financial IQ

by J.D. Roth
Updated on September 19th, 2016

The problem with the standard financial advice is that its bad advice. Youve been told to
work hard, save money, get out of debt, live below your means, and invest in a well-diversified
portfolio of mutual funds. But this advice is obsolete so argues Robert Kiyosaki in his new
book, Rich Dads Increase Your Financial IQ.
Increase Your Financial IQ is the latest installment in Kiyosakis tremendously popular Rich Dad
series of books. These best-sellers have motivated many people (including me) to take control of
their financial lives. But some (including me) have expressed concerns over the authors advice:
The Wall Street Journal: Rich men, poor advice
Kiplingers Personal Finance: They say they want you to be rich
John T. Reed: An analysis of Rich Dad, Poor Dad
Kiyosaki loves to play the rogue, offering unconventional suggestions for building wealth. Hes a vocal
detractor of mutual funds, for example, and frequently seems to be pushing a new hot investment: real estate, oil,
gold, silver. He likes to make provocative claims like people should not live below their means.
Yet if you dig a little deeper, it becomes clear that Kiyosaki is saying a lot of this just to get attention. Its a marketing
ploy. He really does think its important to spend less than you earn he just thinks the best approach to a budget
deficit is to raise your earning power instead of reducing spending. Armed with my own advice about how to read a
personal finance book, I decided to give Increase Your Financial IQ a chance. I approached it with an open mind.
Ultimately I read it three times. Im still not sure what to think of it.
Financial Intelligence
It is not real estate, stocks, mutual funds, businesses, or money that make a person rich, Kiyosaki writes. It is
information, knowledge, wisdom, and know-how, a.k.a. financial intelligence, that makes one wealthy. He notes that
buying a new set of golf clubs wont improve your game, but paying for lessons will. Its his hope that Increase Your
Financial IQ can help readers improve their money game.
Kiyosaki divides financial intelligence into five Financial IQs:
1. Making more money. This is measured by how much money you earn. If you make $100,000 a year, you have
a higher Financial IQ than someone earning $30,000 a year.
2. Protecting your money. Once you earn your money, you need to hold onto it. Protecting your money,
especially from taxes, is the second Financial IQ.
3. Budgeting your money. Being able to live well and still invest no matter how much you make requires a high
level of financial intelligence, Kiyosaki writes. This Financial IQ is measured by how much money you have left
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after expenses.
4. Leveraging your money. This Financial IQ is measured by return on investment. How well do you make your
budget surplus generate more money?
5. Improving your financial information. Financial information doesnt just mean knowledge of basic financial
concepts it also means detailed knowledge of the investments you make.
Most of the book is devoted to exploring these five aspects of financial intelligence in detail.
Financial IQ #1: Making More Money
Many people fail to acquire wealth, Kiyosaki says, because they want the money without the work. What many
people do not realize, he writes, is that its the process that makes them rich, not the money. Its by learning to
make money that you can continue to make money. For each person, the process will be different. We each have
different goals, dreams, and ambitions. The important thing is to find the best way for you to make more money, and
then to build your goals around this.
In order to make money, you must also learn to control your emotions. You must learn to defer gratification. Dont
sacrifice your financial future for a few bucks today. Dont give up. The going can seem tough at times, but if youre
confident in your course, you can learn to solve the problems. Keep your eyes on your goal and find a way to reach
it.
According to Kiyosaki, the key to making money is learning to solve problems. In order to grow wealthy, he writes,
you must come to terms with the fact that problems will never go away. Identify the problems preventing you from
wealth, tackle them head-on, and the money will follow.
Financial IQ #2: Protecting Your Money
Once youve begun to make money, you need to protect it from financial predators. Kiyosaki says there are seven
of them to beware:
1. Bureaucrats Kiyosaki acknowledges the need to pay taxes, but he argues that its his job to (legally) pay as
little as possible.
2. Bankers Banks are constantly trying to siphon bits of your money in the form of fees. Its important to watch
out for and protect against this.
3. Brokers Similarly, fees from brokers can chip away at your wealth. He cites brokers who churn accounts,
buying and selling stocks frequently in order to generate more commissions. (We had this happen to us once
with the box factorys retirement account.)
4. Businesses All businesses have something to sell, Kiyosaki writes. Their job is to part you from your
money; yours is to keep it. Kiyosaki suggests asking yourself whether any particular purchase will make you
richer or poorer.
5. Brides and beaus Money plays an key role in any relationship. You must trust your partner, must reach an
understanding about finances.
6. Brothers-in-law Here, Kiyosakis B theme is stretched to its limit. His point is that in order to protect your
estate from family members you dont intend to share it with, you need to plan for your death.
7. Barristers Finally, its important to protect yourself from legal difficulties.
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Though Kiyosaki lists seven possible pitfalls, he offers little practical advice for coping with them. How does one go
about paying as little tax as possible? What is the best way to approach estate planning?
Financial IQ #3: Budgeting Your Money
There are two ways to solve a budget crunch: decrease your spending or increase your income. Either will erase a
budget deficit, but Kiyosaki believes (as I do) that in the long run, increasing income is a better solution.
Kiyosaki explains that its important to think of a budget surplus a fixed expense. If you decide to save 10% of your
income, then make this ten percent a fixed item in your budget. Treat it just as you would any other bill. Pay yourself
first. You can tell a persons future by looking at what they spend their time and money on, writes Kiyosaki
(channeling the voice of Rich Dad). Time and money are very important assets. Spend them wisely.
Kiyosaki notes that when things get rough, people tend to cut back rather than spend. But if theyd simply prioritize
spending, they could actually improve the situation. Spend less on beer and pretzels, sure, but spend more on
continued education and self-promotion.
Refuse to live below your means, Kiyosaki writes. Instead, increase your means.
Financial IQ #4: Leveraging Your Money
This is the longest and most frustrating chapter of the entire book. It represents the core of Kiyosakis financial
philosophy, yet its not presented in a way that makes it relevant to average people like you and me.
Leverage borrowing money to increase the power of your own cash is good,
Kiyosaki says, if you have the financial intelligence to control the investment. But if
youre not in control of the investment, then leverage is risky. Most of the people
being hurt by the real estate meltdown are people who were counting on the real
estate market to keep going up and increasing their homes value, he writes. They
borrowed against their homes inflated value, but had no control over whether the
housing market rose or fell. This is a lack of financial intelligence.
Instead, Kiyosaki argues, one should use leverage to make low-risk investments,
investments in which you, as the investor, have control. This sounds great, but he doesnt provide any relevant
examples. He discusses his recent purchase of a 300-unit, $17 million apartment complex in Tulsa, Oklahoma.
[This] is a good investment to use leverage with because I have control over the operations, and the operations
determine the value of the investment.
But what if I dont have $17 million? What if I only have $17,000? Or $1,700? How does the average person make
leverage work for her? (This is one of the interview questions I submitted to Kiyosaki I still havent received a
reply.)
Financial IQ #5: Improving Your Financial Information
Warren Buffett is the most successful investor of all time, yet he never takes a gamble. Buffett (and his partner,
Charlie Munger) conduct extensive research for every decision they make. Before they buy a company, they want to
know everything about it. Obtaining this information allows them to invest with confidence.
By contrast, Ive made some really dumb investments. Ive purchased stocks on the hope that they would increase.
These sorts of decisions are not based on information theyre based on emotion.
In order to improve your financial information, its important to:
Separate fact from opinion. Many gurus are happy to offer their opinions gold is going up! but its foolish
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to make financial decisions based on these. Base your decisions on facts.

Verify information. Dont trust just one source of information, but seek confirmation from other parties.
Know the rules. If you dont understand how an investment works, dont make it. Rules provide a valuable
source of information about how the game of money is played, Kiyosaki writes.
Understand trends. Trends are historical facts. Smart investors can use trends to make informed decisions.
However, its important to note that trends do not project to future facts only to opinions about possible
futures. Still, trends are valuable sources of financial information.
Ultimately, Kiyosaki writes, it is not the asset that makes you rich. Information makes you rich.
Developing Your Financial Genius
Though an overview of the five Financial IQs forms the bulk of this 200 page book, its actually the last fifty pages
that hold the most value. It is in these three chapters that Kiyosaki discusses the integrity of money and explains
how to develop your financial genius.
He offers interesting recommendations, such as the importance of producing personal financial statements. He
writes about bringing your financial actions in line with your beliefs. He writes about the psychology of money, giving
special attention to fear of failure. He writes about the power of financial environments. If you want to become richer
and more successful, he says, it becomes critical that you find an environment that allows you to grow and develop.
Financial Integrity
I like the idea of Rich Dads Increase Your Financial IQ. The book fills a niche about which little has been written.
Its motivational. I love Kiyosakis Big Ideas. Theyre a breath of fresh air, offering a perspective often missing in
personal finance discussion. I also like that his writing always motivates me to action, pushing me to pursue my
goals.
However and this is a big however Im often frustrated by the specifics in his books. Increase Your Financial IQ
is no exception. Its not just that I disagree with him; I actually believe hes wrong. Lets look at an example.
Kiyosaki does not believe in diversification. He spends a lot of time criticizing financial experts who recommend a
well-diversified portfolio of mutual funds. The problem with that advice is most advisors dont know if it will work over
time, he writes. I want to ask the expert, Will you guarantee that this financial strategy will work?'
But then Kiyosaki admits that he cannot guarantee his own strategies. Im puzzled. Why condemn the
conventional wisdom for a weakness you admit your own methods possess? At least proponents of index funds
have a long history of facts and trends to support their assertions. Isnt this one of the very components of financial
intelligence this book purportedly praises?
Its stuff like this that prevents me from recommending Kiyosakis books without reservation.
Diversification isnt a hoax. It isnt a scam. Other than Kiyosaki, its embraced by almost every
financial author Ive ever read. Diversification is a central tenet of modern portfolio theory. Its
backed by facts, not opinions.
The richest investor in the world, Warren Buffett, does not diversify, Kiyosaki says. His
implication is that you should not diversify either, but thats completely counter to what Buffett
believes. Buffett does not diversify because hes a professional. His life work is investing. For
99% of all investors, Buffett recommends diversified index funds. (Maybe more than 99%, Buffet
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has said.) Its disingenuous of Kiyosaki to pretend otherwise.

There are other problems of the same nature in Kiyosakis books. That doesnt mean they dont have value. They
do. Many people (and Im one of them) have found the Rich Dad series a powerful motivator. I just think its
important to read these books and all personal finance books, for that matter with an active filter, questioning
what you read, picking the parts that apply to your life and discarding the rest. To me, thats real financial
intelligence.
You can read other reviews of Increase Your Financial IQ at these sites:
Blueprint for Financial Prosperity (Jim likes it because it deals with high-level concepts.)
Cash Money Life (Like me, Patrick has mixed feelings about the book.)
Zen Personal Finance (Justin likes the core of the book, though he feels its recycled material.)
Million Dollar Journey (MDJ, too, thinks theres both good and bad here)
GRS is committed to helping our readers save and achieve their financial goals. Savings interest rates may be low,
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