Introduction
In his eye-opening book "Second Chance," Robert T. Kiyosaki challenges conventional wisdom about wealth and financial success. The 2007-2008 financial crisis left many people bewildered and struggling to understand what had happened. Kiyosaki argues that this confusion stems from widespread misconceptions about economics and how to become rich. He sets out to debunk these myths and reveal the true path to financial freedom.
Kiyosaki's central argument is that the traditional route to success – getting a degree, finding a good job, and working hard – is no longer enough to make you wealthy. Instead, he proposes that the only way to achieve true wealth is by owning and capitalizing on assets. Throughout the book, he explains why the current financial system is set up to benefit the rich and offers practical advice on how anyone can start building wealth through smart financial decisions.
The Flaws in the American Economic System
Inflation: The Silent Wealth Thief
Kiyosaki begins by examining how the American economic system is fundamentally based on inflation, which he argues robs people of their wealth. This concept may sound like something out of an old Western movie, but the author insists that "The poor get poorer and the rich get richer" has never been more accurate in the United States.
Inflation is particularly harmful to average citizens because it erodes the value of their hard-earned money. Paradoxically, inflation often encourages people to save more, which actually contributes to the problem. Here's how:
- When you deposit your savings in a bank, the bank lends that money out to borrowers.
- Banks are allowed to lend out much more than they receive in deposits.
- Before the 2007 crash, banks had a lending limit of $34 for every dollar they actually held.
- This increase in the money supply causes inflation, devaluing the original dollar deposited.
Financial Bubbles and Bailouts
The system of wild lending periodically results in financial bubbles, which are then addressed through bailouts. Kiyosaki points out that these bailouts are actually built into the system and are funded by taxpayers. This means that the current monetary system is designed to create poverty for some while benefiting others.
The groups most harmed by this system are those who work for a paycheck: employees, freelancers, small business owners, and specialists. These individuals typically pay the highest taxes and tend to keep their savings in banks, making them particularly vulnerable to the negative effects of inflation and bailouts.
The Shrinking Middle Class
As evidence of this system's impact, Kiyosaki highlights the rapid shrinking of the middle class. In 1970, 50.3 percent of Americans earned a middle-class income. By 2010, that figure had decreased to just 42.2 percent. This stark decline demonstrates the real-world consequences of the flawed economic system.
The Financial Education Gap
Schools Fail to Teach Financial Literacy
One of the key issues Kiyosaki identifies is the lack of financial education in schools. He argues that modern education is designed to turn people into employees, taxpayers, and consumers rather than teaching them how to build wealth. Many people believe that education is the solution to poverty, assuming that studying harder will lead to a better job and higher earnings. However, Kiyosaki challenges this notion, pointing out that even individuals with multiple advanced degrees can find themselves unemployed and poor.
While there's nothing inherently wrong with being a hard-working, taxpaying consumer, Kiyosaki insists that this alone won't make you rich. Schools simply don't offer the kind of financial education necessary to prepare students for making money in the real world.
The Consequences of Financial Illiteracy
This lack of financial education leaves many people defenseless against economic crises. Kiyosaki uses the 2007 financial crisis as an example, noting that most people mistakenly believed it was a stock market crash when it was actually a derivatives market crash. Derivatives are complex and risky insurance policies that made up a significant portion of the market at the time.
If the general population had better financial education, they might have recognized the risks associated with the rapid growth of the derivatives market between 2000 and 2007. This knowledge could have helped them prepare for and potentially mitigate the impact of the crash.
Misconceptions About Wealth and the Wealthy
The absence of proper financial education also leads to misconceptions about money and wealth. Many people assume that wealthy individuals are inherently evil and purposefully make others poor. While Kiyosaki acknowledges that this can sometimes be true, he argues that it's not always the case. In fact, some people become wealthy precisely because they're generous.
He cites John D. Rockefeller as an example. Rockefeller became rich by selling gas at lower prices than his competitors, which made life easier for millions of working-class people who previously didn't have access to gas.
The Power of Financial Education
Why Schools Don't Teach Finance
Kiyosaki makes a bold claim: schools don't teach financial education because it's too powerful. He argues that financial education involves looking beyond traditional explanations and gaining the knowledge necessary to create more assets – knowledge that has the potential to make you wealthy.
Drawing a historical parallel, Kiyosaki notes that in the past, slaves weren't allowed to read and write because it would have given them too much power over their owners. He suggests that today, most people are deprived of financial education for similar reasons – to maintain the current power structure.
Redefining Wealth
One of the key misconceptions Kiyosaki seeks to correct is the idea that wealth is about getting a big paycheck. Instead, he defines real wealth as having assets that generate money without requiring you to work for it. This is where financial education becomes crucial – you need it to know how to create these assets.
For example, if you buy an old house, repair it, and start renting it out, you've created an asset. You'll receive rent from tenants without having to work for it directly. Moreover, the government often rewards asset ownership with lower tax rates, further increasing your wealth.
Assets vs. Liabilities
People without proper financial education often think in terms of income and expenses, leading them to mistake liabilities for assets. A common example is homeownership. Many people consider their house an asset, but Kiyosaki argues it's actually a liability because it takes money away through mortgage payments and taxes.
Assessing Your Financial Situation
The Importance of Financial Statements
Kiyosaki emphasizes that determining whether someone is rich or poor isn't as straightforward as it might seem. You can still be poor even if you live in a nice house and drive an expensive car. To truly understand and change your financial situation, you need to create two key documents:
- An income statement: This lists your income and expenses.
- A balance sheet: This tracks your assets and liabilities.
He provides an example to illustrate this point: Imagine you have a job that pays $10,000 per month and an apartment you rent out for $1,000 per month. You also pay $2,000 in mortgage payments every month and lease a Ferrari for $1,000 per month. Most people might assume all of these things are assets, but in reality, only the apartment you rent out is an asset. The other items either cost you money or require you to work for them.
The Four Asset Classes
After assessing your financial situation, Kiyosaki advises focusing on acquiring new assets. He introduces the concept of four asset classes:
- Business
- Real estate
- Paper assets (stocks, bonds, etc.)
- Commodities
He recommends choosing the asset class that interests you most, as genuine interest can make a significant difference in your success. Kiyosaki shares that he's most interested in commodities and real estate because he genuinely likes gold, silver, oil, and historic buildings. This interest motivates him to study his assets thoroughly and hold onto them instead of selling when prices rise.
Charting Your Financial Future
Defining Your Goals
Kiyosaki emphasizes that before you start your journey to wealth, you need to figure out what kind of future you want for yourself. He acknowledges that being wealthy isn't the most important thing in life, and some people are much happier working a nine-to-five job for their entire career than pursuing a high-powered financial path.
However, if you do want to be wealthy and financially independent, Kiyosaki insists that a nine-to-five job won't get you there. You need to let go of the employee mentality and focus on big business or professional investing.
Developing Entrepreneurial Skills
Success in big business or professional investing requires the right education – specifically, the skills of an entrepreneur. Kiyosaki highlights a key difference between entrepreneurs and self-employed individuals: entrepreneurs are generalists who know a little about a wide range of topics and hire specialists to handle the rest.
This broad knowledge is crucial because when entrepreneurs start a business, they're responsible for every aspect of it, from product development to team leadership. Therefore, if you want to be an entrepreneur, Kiyosaki advises against specializing in a single field. Instead, learn about all the elements that make a business work, such as:
- Team building
- Leadership skills
- Company missions
- Marketing strategies
- Financial management
The Power of Cooperation
Kiyosaki also stresses the importance of striving to cooperate instead of compete. He argues that the employee mentality often makes people think they have to compete with their colleagues to get ahead, but that's not the kind of thinking you want in your team. A skilled entrepreneur knows how to guide the group to success through collaboration and mutual support.
Practical Intelligence: The Key to Success
Redefining Intelligence
Kiyosaki challenges the traditional notion of intelligence, arguing that the kind of smarts that make you successful in school aren't necessarily the same ones that lead to financial success. In school, you're considered intelligent if you have a good memory and learn to read and write quickly. However, in the real world of business and investing, different skills are far more valuable.
For entrepreneurs, intelligence is about:
- Handling risks and financial losses
- Learning from mistakes
- Staying level-headed under pressure
- Making sound decisions in complex situations
These practical skills are much more important for building a successful business than memorizing facts or excelling at standardized tests.
Learning Through Experience
So how do you acquire these crucial entrepreneurial skills? Kiyosaki emphasizes that the best way to learn is through experience and practice. He suggests several approaches:
- Learn from a coach or mentor
- Take courses from experts in your field of interest
- Practice and apply what you've learned in real-world situations
Kiyosaki stresses that we learn best when we actively engage with a subject, not just passively absorb information. It's the experiences that stay in our memory, not the facts we've memorized for a written test. This often means taking risks, making mistakes, and learning from those errors.
He challenges the school system's approach to mistakes, where errors are punished and associated with stupidity. In the real world of business, Kiyosaki argues, making mistakes is an essential part of the learning process. Each error teaches a valuable lesson that you're unlikely to forget.
Simulating Experience
For those who don't have the cash to start investing right away, Kiyosaki recommends simulating the experience through practice. Before he first bought property, for example, he spent time studying ads, visiting houses, and talking to brokers. This hands-on approach allowed him to gain practical knowledge and experience without risking real money.
By engaging in these simulated experiences, you can develop the entrepreneurial skills necessary for financial success, even before you have significant capital to invest.
Rethinking Debt: A Tool for Wealth Creation
The Power of Leverage
Kiyosaki challenges the conventional wisdom about debt, arguing that for entrepreneurs, debt can be a powerful tool for gaining leverage. While most people follow simple rules like "work hard and stay out of debt," Kiyosaki suggests that this approach won't lead to wealth.
He explains that working harder often leads to diminishing returns due to higher tax rates. Instead of simply working more, Kiyosaki advises finding ways to do more with less. He uses the example of a musician who moves from only playing live shows to selling CDs – they're reaching more people while doing less work.
Using Debt to Create Assets
Kiyosaki argues that debt can be used in a similar way to create leverage in the financial world. It allows you to do things you don't otherwise have the savings to do. He shares a personal example from the 1980s when he first got into real estate:
- He purchased a small apartment for $50,000
- He paid a deposit of $5,000
- He took out a loan with 10% interest for the remaining $45,000
- His monthly payments (including interest) were about $450
- Rent in the area was around $750
This strategy allowed him to acquire an asset that generated positive cash flow from the start, using debt as a tool to create wealth.
The Traditional Approach vs. Smart Debt
Kiyosaki contrasts this approach with traditional thinking, which says you should work hard, save money, and buy assets without loans. He argues that this approach doesn't work for most people because they can't save enough to buy valuable assets outright.
Instead, he advocates for using debt strategically to create assets. He shares an anecdote about a friend who successfully used this strategy:
- The friend went into debt to buy a 150-year-old church in Scotland
- He turned the rundown building into an exclusive housing complex
- The project made money for him and provided unique homes for others
This example illustrates how debt can be used creatively to turn overlooked opportunities into valuable assets.
Expanding Your Financial Vocabulary
As a practical step towards improving your financial education, Kiyosaki recommends expanding your financial vocabulary. He suggests:
- Start reading financial publications like the Wall Street Journal
- Look up words you don't understand
- Aim to learn two new financial terms each day
By following this approach, you can learn 60 new financial terms in a month, gradually building your knowledge and understanding of the financial world.
Final Thoughts: Your Path to Financial Freedom
In "Second Chance," Robert T. Kiyosaki presents a compelling case for rethinking our approach to wealth and financial success. He argues that the current monetary system, coupled with inadequate financial education, keeps many people trapped in a cycle of working hard without ever achieving true wealth.
The key takeaways from the book include:
- The importance of financial education and how it differs from traditional academic knowledge
- Understanding the difference between assets and liabilities
- The power of using debt strategically to create wealth
- The need to develop practical, entrepreneurial thinking skills
- The value of choosing the right asset class based on your interests and goals
Kiyosaki challenges readers to take control of their financial future by:
- Assessing their current financial situation honestly
- Setting clear goals for the future they want
- Acquiring the necessary financial education
- Taking action to build assets and create wealth
While the ideas presented in "Second Chance" may seem unconventional or even controversial, they offer a fresh perspective on wealth creation in the modern economy. By following Kiyosaki's advice, readers can potentially transform their financial lives and work towards true financial freedom.
Remember, the path to wealth isn't about working harder in a traditional job – it's about working smarter by creating assets that generate income without constant labor. With the right knowledge, strategy, and mindset, Kiyosaki believes anyone can take advantage of the opportunities in today's financial landscape and build lasting wealth.
As you embark on your own financial journey, keep in mind that success doesn't happen overnight. It requires patience, persistence, and a willingness to learn from both successes and failures. But with the insights and strategies provided in "Second Chance," you're better equipped to navigate the complex world of finance and work towards the financial future you desire.