Read the book with me, pick it up here: https://amzn.to/2OLDCIH
Lesson 2: Why Teach Financial Literacy
Financial Literacy is so important, and it is very interesting that we do not have requirements for these courses in school. Most kids can ask where the library is in French or Spanish but cannot tell you how compound interest works.
Rule #1: Know the Difference Between an Asset and a Liability
Due to this lack of literacy, people who get a windfall (lottery, professional athletes, rich uncle, etc.) tend to lose it all. They do not understand even the basics. Also, we are apt to miscategorize assets and liabilities. Basically, rich people will take their money and buy things that make them money, a.k.a assets (dividend stocks, rental properties, etc.). Poor people, on the other hand, think their personal house is an asset when in reality, it is a cost center and as such a liability. They also spend far too much on cars, which is the worst investment you can make.
How the Quest for a Financial Dream Turns into a Financial Nightmare
Poor people with limited financial literacy do not understand the fundamental basics of cash flow and because of this, an increase in the amount of money does not lead to more wealth. Their pattern of spending does not change, they just spend more on liabilities.
One very interesting point made here - the number one expense for most people (not houses, not cars, not food) is income tax! This blew my mind, it is so true because the government gets about 40% of my income.
This awakening in the kids had started to cause problems in school when they were 16. They spent so much time with Rich dad, listening in on phone calls and learning how to deal with vendors and partners. It was interesting that a man who dropped out of high school (Rich dad) was now working with and directing very well educated people. He was truly in charge.
Why the Rich Get Richer
As we discussed before, the rich get richer because they tend to spend cash on assets that build wealth. Their assets make more income than they spend.
Why the Middle-Class Struggle
Expenses increase as income increases, they tend to have balanced income and expenses with no real savings.
Still an excellent book. I will see you for lesson 3.
I am just a regular guy who does far to much research on financial independence and early retirement (FI/RE). I look forward to sharing my journey with you all.