Rich Dad, Poor Baby

Unless you’ve been hiding under a rock for the past decade, you know there’s a popular financial self-help book series titled Rich Dad, Poor Dad written by Robert Kiyosaki. The basic premise of the numerous books Mr. Kiyosaki has spun out can be stated in a few sentences.

Rich Dad passes on the lessons of financial success, which follow the basic dictum to work, save, borrow to invest, take prudent risks, produce, create value, and sell to accumulate tangible wealth and realize financial freedom. Poor Dad ends his lessons at working hard at a good job in order to retire comfortably and securely after a long and hopefully productive career. Poor Dad tends to borrow to bridge consumptions needs and income, in effect buying cars and homes with credit and debt.

The difference here is that Poor Dad’s wealth-creating productivity is captured by someone else, usually an employer or financier, who is taking the risks that pay his salary. In effect, the Poor Dad has traded financial freedom for security, and perhaps foregone accumulated wealth to pass on to heirs in return for future pension promises that may expire with his final breath. Mr. Kiyosaki’s insight is that too many choose Poor Dad’s strategy because they mistakenly feel they have little choice. (Rich Dad’s strategies to invest and accumulate wealth can take an infinite number of forms, but Mr. Kiyosaki’s main strategy is highly-leveraged investment real estate, a profitable strategy in the past because it’s subsidized by government tax and credit policies. Profitable, at least until everybody else tries to get in on the action and inflates prices into a “bubble.”)

The Rich Dad, Poor Dad financial formula can help illuminate the similar choices we face as a nation. From an economic perspective we see that Rich Dad produces more and consumes less of his income, while Poor Dad consumes a greater share of his income. When Poor Dad’s consumption needs outstrip his savings, he borrows against future income. In our current political vernacular, Rich Dad is the 1%, while Poor Dad is the 99% (the true ratios are probably closer to 20-80). At the level of the national economy, the relationship between these two strategies is symbiotic; in other words, the two need each other to thrive in order to survive. Their relationship is simply stated: Without consumers, producers have no market and without producers, consumers have no goods.

The problem is that as a nation, we’ve adopted Poor Dad’s financial strategy. We’ve taxed work, savings, production, investment and capital accumulation, while subsidizing debt and over-consumption. This is marked by greater dependence on government income security in the form of unfunded entitlements (Social Security, Medicare, Medicaid, Obamacare) and the explosion of debt to manage inadequate present consumption demand by borrowing it from the future. The interest on those trillion dollar deficits and $16+ trillion dollar debt will have to be serviced by future tax dollars that will reduce future consumption demand. In effect, the wannabe Rich Dads (and Moms) of today are pushing the burden of unfunded entitlements and debt off on future generations, or the Poor Babies.

One might be tempted to make partisan political hay out of this shameful fact, but both parties and all voters are complicit in the national scam. One party spouts empty rhetoric about ending the tax and spending regime but does little, while the other party puts the pedal to the metal to gain votes. The big government, pro-entitlement pushers expect that future generations will see the wisdom of paying higher taxes and settling for less in order to pay for cradle-to-grave security, but there’s good reason to question this assumption. It seems to directly contradict the technology trend toward greater autonomy and freedom of choice that younger generations have come to take for granted. One thing is for sure, greater dependency on social entitlements must come at the cost of less personal autonomy and freedom of choice. In other words, less freedom. This was not supposed to be Rich Dad’s legacy.

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