BECOME FINANCIALLY LITERATE

The key to riches is becoming financially literate. It’s a strategy Rich Dad drummed into my head every time we were together, even as Poor Dad was stressing the importance of reading books and going to school. Unfortunately, schools don’t teach financial literacy. That’s why my hard-working, educated dad was getting nowhere. Rich Dad may not have been school educated, but because he was financially educated, he left the rat race behind and became a business owner and investor.
Rich Dad Tip:
“If you want to be rich, you have to be financially literate.”
Look at it this way: If you’re going to build the Empire State Building, the first thing you need to do is dig a deep hole and pour a strong foundation. Most people, in their drive to get rich, try to build an Empire State Building on a six-inch slab. What they end up with is a Leaning Tower of Debt that threatens to come tumbling down. If you want to build riches and hold on to them, you need a strong foundation of financial literacy.
Financial literacy requires proficiency in several areas: economic history, accounting, taxes, investing, and building businesses. These are difficult subjects to master, particularly accounting and investing. But don’t let the level of difficulty scare you off. Anyone can master these subjects, including you. It’s a matter of choosing to do so, then moving through the subject material at a pace that suits your individual learning style. Becoming financially literate has nothing to do with how far you got in school. Don’t worry if you weren’t an A student. Don’t worry if you’re currently working as a janitor, or gardener, or garbage collector, or even if you’re unemployed. What matters is whether you’re willing to educate yourself. If so, you can become a business owner and investor and eventually achieve financial freedom.
How can you become financially literate?
By opening your eyes and ears—your mind—to information that’s all around you. Financial magazines like Forbes and newspapers such as the Wall Street Journal provide a wealth of information. So does the business page of your local newspaper. So do financial news broadcasts on television and the radio. There you’ll be learning the basics of economic history, accounting, taxes, investing, and building businesses—the foundation of your financial literacy.
What’s Your Financial Intelligence?
Financial intelligence is how you approach, and solve, your financial problems. Estimate your general level of financial intelligence by determining which group you’re in:
People with average financial intelligence know only:
Bad debt, which is why they try to pay it off
Bad losses, which is why they think losing money is bad
Bad expenses, which is why they hate paying bills
Taxes they pay, which is why they say that taxes are unfair
Climbing the corporate ladder instead of owning the ladder
Buying shares of a company rather than selling shares of a company they own
Investing only in mutual funds or picking only blue-chip stocks
People with advanced financial intelligence know the difference between:
Good debt and bad debt
Good losses and bad losses
Good expenses and bad expenses
Tax payments and tax incentives
Corporations you work for and corporations you own
How to build a business, how to fix a business, and how to take a business public
The advantages and disadvantages of various investment vehicles: paper securities, real estate properties, and businesses.
Rich Dad Tip:
“My banker has never asked me for my report card. My banker wants to see my financial statement.”