Robert Kiyosaki: Scam Artist giving Dangerous Financial Advice?

Recently I wrote an article about Robert Kiyosaki’s cashflow quadrant. It teaches that in the world of business there are four types of people: E for employee, S for self-employed or small business, B for business, and I for investor. The point is to familiarize yourself with the entirely different mentalities belonging to each of the four quadrants. It’s a good concept to have in your toolkit along with essentials such as the ability to do a SWOT analysis, and to read a profit and loss statement.

While listening to Kiyosaki’s audio program entitled “You Can Choose To Be Rich” yesterday, there were times when the author’s credibility and character came into question. For example, he went through several accountants looking someone who wouldn’t tell him what “he couldn’t do”, and landed up hooking up with Diane Kennedy. He was obviously interested in the gray areas of tax law, since he wanted to know about the repercussions of any harebrained scheme he suggested.

As a skeptic, I never take anyone’s advice verbatim. Like any “guru” out there (although he’ll claim he isn’t one), some of his advice is useful, while other bits are valid enough to be regulated to the trash heap. As a layman in terms of finance, I need to be a little extra careful.

The problem lies in the fact that Kiyosaki’s book and programs are beginners with no little or no formal training in finance. This is makes his advice dangerous because most listeners are unable to separate the wheat from the chaff.

John T. Reed has written an extremely detailed analysis of “Rich Dad, Poor Dad”, and while his attempts to discredit the author can come off as sensationalised, anyone who has read the book and plans to follow through with Kiyosaki’s advice need to read his arguments.

In 2001, a reader pointed out that “Although based on a true story, certain events in this book have been fictionalized for educational content and impact,” is now in fine print on the copyright page of “Rich Kid, Poor Kid”. To raise suspicions further, Kiyosaki refuses to disclose the name of his “rich dad”. The Honolulu Star-Bulletin was unable track him down, despite the fact he was reported to live next-door in the book. It is probable that “rich dad” is a fictional character, and until Kiyosaki proves otherwise it’s reasonable to assume presenting the book as real life story is a scam.

Note that the author’s “rich dad” is uneducated while his “poor dad” is highly educated. This allegory mirrors Kiyosaki’s opinion that “good grade aren’t important” because not once has a banker asked him for his report card. This reasoning falls flat when you look at the statistics. Typically the more educated a person is, the more earning power they have. It certainly doesn’t guarantee it, however it’s best to keep the facts in mind before buying into Roberts Philosophy.

Average Weekly Earnings by Amount of Education

doctoral degree $1,441
professional degree $1,474
master’s degree $1,140
bachelor’s degree $962
associate degree $721
college dropout $674
high school grad $595
high school dropout $419

Kiyosaki argues that there is bad debt and good debt. Bad debt is money spent on liabilities like luxury automobiles and HDTVs. A good debt is when you put the money into your business or investments. His stance sounds reasonable until you combine it with a thrill-seeking approach to business endeavours. He is approving of the Texas saying, “If you’re going to go broke, go broke big.”

Success is created through calculated risk. When you take big risks in business on borrowed money, you are setting yourself up for possible bankruptcy. In the early 80s, Robert Kiyosaki declared bankruptcy after he left the nylon wallet business and his plan to sell licensed Heavy Metal T-shirts failed. He and his wife Kim hit rock bottom, becoming homeless. Things were so tight that a bucket of KFC, a motel and clean sheets seemed like heaven to the couple. To Kiyosaki, huge downs like this are part of being an entrepreneur. To outsiders, it shows his inability to make good business decisions.

Businesspeople aren’t known for their moral superiority or lack of controversial opinions. Kiyosaki fits the role of the clichéd business owner well. I wager that his new business model is based around selling books, audio programs and cash making systems, not getting starting legit businesses like he may have done in the past.

Go ahead and read his books and listen to his audio programs as long as you can take the advice with a grain of salt. The part I’d be weary of going to seminars. There are reports of people getting offered the exact methods he uses to make money for a mere $4,995. That is where his system enters scam territory.

Nearly everyone starts with “Rich Dad, Poor Dad.” His entire scheme is designed to up-sell his customers until they reach the big enchilada. Don’t fall for it.