If I have to pick one book that changed my financial outlook, it will be Rich Dad, Poor Dad (2001) by Robert Kiyosaki.
I had heard about the book but didn't get to read it till about six years ago. I was on a family vacation to Hawaii and chanced upon the book at the airport bookshop in Changi. Reading it during the flight, I was completely floored by the viewpoints in the book. Some came across as common sense but we all know that even that is not common at times.
Like Kiyosaki, I was brought up to believe that my life was all set if I studied hard, excelled in school and landed a good job. It is also typical of many bright students, even today, to aspire to be doctors and lawyers, partly because these professions are supposed to provide the best monetary rewards.
But the reality is, there are many people, including highly educated ones, who later find themselves struggling financially and unable to get ahead, despite working hard.
In his book, Kiyosaki attributes this to their lack of financial aptitude. You see, formal schooling equips us with the knowledge of how to make money, but not how to use it.
In a nutshell, financial aptitude means knowing what to do with the money once you made it, how to keep people from taking it from you, how long to keep it, and how hard that money can work for you.
Lacking financial aptitude, many individuals do not know how to make their money work for them. As a result, most of them end up not being able to tell why they struggle financially because they do not understand the seemingly simple concept of 'cash flow'.
A person can be highly educated and professionally successful, but financially illiterate.
Another refreshing point in the book is the way Kiyosaki views assets and liabilities. This is his definition: Assets put money into your pocket whereas liabilities do the exact opposite. The poor and middle class are trapped in a vicious circle, as they have a general tendency to increase their expenses proportionately as their wages rise.
The trick, says Kiyosaki, is to focus your efforts on buying income- generating assets and keeping your expenses and liabilities down.
As time goes by, excess cash flow from assets is reinvested into the asset category. By doing so, the more the assets grow, the more your cash flow grows.
What then, would be the right assets? Say you own a second property and the rent you collect is more than enough to cover the housing loan. That's an income- producing asset.
Other examples are investments that yield a net positive return or have value or produce income or appreciate over time. They include stocks, bonds, unit trusts and royalties from intellectual property such as music, patents and books.
The recent saga over the alleged mis-selling of investment products linked to the bankrupt investment bank Lehman Brothers highlights the importance of financial literacy. Out of the thousands of affected investors, there were many who did not know what they were getting themselves into.
For them, losing their money in what has turned out to be worthless products was a painful lesson.
It is worse for those investors who have already retired and had invested all or the bulk of their savings earmarked for retirement in these products. They are in an unenviable spot since they may have no new source of income and are already beyond their earlier life phases of wealth creation and accumulation.
It is no wonder that there is an urgent cry now to include financial literacy in our school curriculum at all levels, from the primary to tertiary level. And instead of the subject being relegated to supplementary or enrichment lessons, it has been suggested that it be made a core examinable subject.
I believe the Ministry of Education is taking this idea seriously and I am sure it is a matter of time before financial literacy makes its entry into the school as a formal subject.
This can only be good news for parents like me because any form of external help to instil good money management skills in our children is always welcome.
Thanks to Kiyosaki, I have already started to dispel in my children the traditional belief that studying hard and getting a good job is the way to ensure a financially comfortable life.
Armed with my newfound knowledge, I started to put it to the test with my children, aged 15 and 14, a few years ago.
To sum up, here is a very apt observation from Kiyosaki:
'The rich buy assets.
The poor only have expenses.
The middle class buy liabilities they think are assets.'
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