Kiyosaki: get rich through debt, but study it

Debt is 'hand grenade' that kills if misused, but if used smartly, debt can grow wealth too, asserts personal finance author Robert Kiyosaki. 

Fri, Jun 08, 2012
The Business Times

By Rachel Au-Yong

DON'T ask Robert Kiyosaki for tips on how to get rich. He'll just tell you to "get smart". "The last guy who asked for a tip invested in Facebook," he said, referring to the social networking site's poor showing on the stock exchange.

Rather, the author of personal finance best-seller Rich Dad Poor Dad wants people to get smart about debt.

"People are so used to working hard for dollars. But the rich become rich through debt," the 65-year-old told more than 300 attendees at a book signing organised by the National Library Board last Thursday. "It's a fundamental change of thought."

The controversial writer encourages people to use debt to finance the purchase of assets, which he defines as things that generate cashflow. These include businesses and rental properties.

Assets can also be as simple as a self-written e-book on how to write e-books, his wife and fellow author, Kim Kiyosaki, said. "My friend did that and she makes about US$300 a month on royalties - it's small, but she doesn't have to do anything else for the money to keep coming."

The underlying principle of Mr Kiyosaki's 22 books is this: be an entrepreneur, not an employee. Not only do assets generate perpetual income for you, but their ownership also gives many an entrepreneur tax breaks in the United States, he said.

"As a business owner with more than 25,000 employees, every state would give me a tax break for moving there," Mr Kiyosaki told BT in a phone interview. "And the reason they give me tax breaks is because they tax my employees."

This is why he rails against the American education system - it trains students to be employees, which will always leave them poor, he told audiences.

Determined to bypass what he thinks is wrong, "brainwashing" advice in American schools, Mr Kiyosaki is rolling out his own financial education system with his books, and soon, mobile platforms like the iPhone.

"I teach, even though it's a poor dad's kind of job," he said, referring to the book that made him a household name. "That's because I'm very concerned - worried really."

Mr Kiyosaki is especially cautious about a global financial crash, which he predicts will happen in 2016.

"Israel will bomb Iran before 2014, and oil prices will skyrocket to US$300 to US$400 a barrel. The world economy will collapse because it can't sustain that," he told BT.

He also thinks America risks going into hyper-inflation, if the Federal Reserve continues to print more dollars to lower interest rates and encourage spending in a declining domestic market.

But as worried as he is, Mr Kiyosaki believes he can come out of any crisis relatively unscathed because of his choice of investments.

Referring to his prophecy about imminent war and high oil prices, Mr Kiyosaki said: "As much as I hope such a crisis doesn't happen, I'll end up a rich man, anyway."

This is because he owns around 100 oil wells and oil drilling operations around the US.

"I'm in oil production - I'll be needed because governments need me to provide oil and jobs. You need me so you can fly planes," he explained, adding that he does not invest in oil company shares like ExxonMobil.

Besides oil, Mr Kiyosaki also purchases precious metals.

"I don't save money - I save gold and silver," he said, adding that investing in precious metals helps hedge against governments' misprinting of money. "Those will always be real money."

Mr Kiyosaki advised his Singaporean audience to buy gold, especially since goods and services tax on precious metals will be scrapped here come October. This means that investment-grade gold will effectively be 7 per cent cheaper.

He also adds to his long list of properties every year. This includes, he says, more than 4,000 properties around the US, particularly in Texas and Arizona.

He is especially fond of rental properties.

"This is what I mean when I say I use debt to get rich - my tenants are the ones who essentially pay the mortgage for me."

While most of these properties were predominantly financed by bank loans, land appreciation and continual improvements to the properties have tripled, even quadrupled, the value of some of his initial investments, he said.

Without working, Mr Kiyosaki said he can earn about US$2 million a month, part of which comes from royalties from his book sales.

But whether people choose to invest in commodities and properties like his or not, Mr Kiyosaki is clear about one thing - he wouldn't save money in this economic climate.

"Europe, China and the US are printing trillions of dollars," he claimed. "That means for the next 20 years or so, the purchasing power of paper currency, including the Singapore dollar, is going to go down."

When asked about the difficulties of financing relatively more expensive items, Mr Kiyosaki said, "That's why I tell people to study debt. It can be quite the hand grenade if you don't know anything about it - if you misuse it, it'll kill you."

Young people often tell him that they don't have money, but this situation primes them well to learn about debt, he said.

In a sold-out seminar attended by 3,000 people last Saturday, Mr Kiyosaki recounted how he and his wife bought a few hundred dollars' worth of silver at US$3 an ounce in the 1980s, while still in debt of US$1 million. Today, silver is worth about US$35 an ounce.

"Don't be afraid to start small," he advised.

This article was first published in The Business Times.