FINANCE CLASS

This is a letter from Robert Kiyosaki about 17 things that should be taught in schools.

“School is a great experience for some children. For others, schooL is the worst experience of their lives. Every child has a genius. Unfortunately, their genius may not be recognized by the educational system. Their genius may even be crushed.

Thomas Edison, one of the great geniuses of modern times, was labeled “addled” by his first teacher. Addled means “mixed up or confused.” He never finished school, and instead became an inventor and an entrepreneur. He created products that have changed the world. A few of Edison’s early projects were the phonograph, the motion picture camera, and the electric light bulb.

Albert Einstein also failed to impress his teachers. From elementary school through college, his teachers thought he was lazy, sloppy, and insubordinate. Most of his teachers said, “He will not amount to anything.” Yet Einstein became one of the most influential scientists in history.

Most parents know that a child’s true genius is found in their dreams. We see glimpses of it from an early age … the ideas and things that delight them, fascinate them and challenge them. Protecting and nurturing the genius in your child is a parent’s most important job.

Financial education is largely ignored. Again, we advise kids to go to school to get a job and work for money, yet we teach them little or nothing about money.
While 90 percent of students want to learn more about money, 80 percent of teachers do not feel comfortable teaching the subject. Here is a financial education program in 17 lessons.

Lesson 1: The History Of Money
It’s important to understand how money works. Money has progressed over the centuries from something pretty simple, like bartering, to something pretty complicated, like derivatives. It’s gone from being an object to an idea, so it’s not tangible and intuitive. It’s important to study money to grow rich. Some dates that are important:
1903 – Rockefeller’s General Education Board takes over the U.S. education system
1913 – The Federal Reserve is formed
1929 – The Great Depression
1944 – The Bretton Woods system of monetary management established the rules for commercial and financial relations among the United States, Canada, Western European countries, Australia, and Japan
1971 – Nixon takes the dollar off the gold standard
1974 – Congress passes the Employee Retirement Income Security Act

Lesson 2: Understanding Your Personal Financial Statement
A banker wants to see your financial statement—your report card when you leave school.”

Lesson 3:  The Difference Between An Asset And A Liability
Many people think their house is an asset when it’s really a liability. A simple definition of an asset is anything that puts money in your pocket. A simple definition of a liability is anything that takes money out of your pocket.

Lesson 4: Seek Cash Flow… Then Capital Gains
Many people invest for capital gains, meaning they’re betting on the price of something to go up. Instead of investing for capital gains, the wealthy invest for cash flow and capital gains are icing on the cake, if they do happen.

Lesson 5: Three Types Of Income – earned, portfolio, and passive
If you receive a paycheck you make money through earned income.
If you make money through capital gains that is portfolio income.
Passive income is when you make money regardless of whether you work or not.

Lesson 6: The CASHFLOW® Quadrant



On the left side of the quadrant are Employees and Self Employed. They pay the most in taxes and trade their time for money.
On the right side are the Business owners and Investors. They pay far less in taxes but create (or invest) in assets that make money for them even when they’re sleeping.

Lesson 7: Savers Are Losers
In 1971, President Nixon changed the rules of money. That year, he closed the gold window instantly turning our dollar (which was backed by gold) into a currency. The reason savers are losers is because the value of the dollar continues to lose its value because of inflation. What your money can buy in the future is less than it can purchase now.

Lesson 8: Your Wealth Number
True wealth isn’t determined by your net worth or how big your bank account reads.
If you are making money through passive income and it’s more than you spend every month, you have an infinite wealth number.

Lesson 9: The Difference Between Fundamental And Technical Investing
Fundamental investing is the process of analyzing a company’s financial performance, and that begins with understanding a financial statement.
Technical investing is measuring the emotions or moods of the markets by using technical indicators.

Lesson 10: How To Measure An Asset’s Strength
There are four asset classes:

Business – An example is Ford Motor Company. The company is a public company which means it has shares of stock available for any one to purchase. If the company is successful the value of the shares goes up. Here is the history of Ford stock.

Real Estate – As you know, most families buy a home to raise a family. Homes are the most popular form of real estate assets. But when you look around, every direction you look is real estate. It starts with land and then is transformed by us into ranches or amusement parks or housing tracts or manufacturing companies like Ford. If you purchase real estate history shows it always appreciates in value over time. Here is what land in Temecula has done in 100 years.

Paper Assets – These are pieces of paper that are certificates of ownership such as Trust Deeds that prove a person owns a property and mortgage notes that are certificates of ownership of a loan made to a person to enable that person to purchase a home. Other examples are stock certificates showing that a person owns stock in a company like Ford.

Commodities – This is the name for everything else – metals, oil, chemicals, gases, liquids, solids. You can own any commodity and the market for it can go up and it can go down. A great example is oil. Here is a look at the price of oil since 1950.

Study these classes, choose what is best for you, and work towards becoming an expert.

One of the best ways measure whether an asset is strong or not is to refer to the Business-Investor Triangle, which looks at an asset’s full properties: Team, Leadership, Mission, Cash Flow, Communications, Systems, Legal, and Product.

Lesson 11: Know How To Choose Good People
Partners are crucial to business success.  Learn from every interaction. A good deal can blow up if you have a bad partner. So choosing partners and team members well is crucial.

Lesson 12: Know When To Focus And When To DiversifyIdeally, you’ll want to be diversified in all four asset classes, but you’ll want to focus on becoming an expert in one at atime.

Lesson 13: Minimize Your Investment Risk
In investing and business, there is always an element of risk. A smart investor knows how to minimize risk by hedging. Study up on ways to minimize risk in your chosen asset class.

Lesson 14: Make More Money With Proper Management of Taxes
 “It’s not about how much you make, it’s about how much you keep.” Taxes are your biggest expense. That’s why it’s important to understand how you can best limit that expense.
A financially intelligent person understands how to use the tax code to his or her advantage.

Lesson 15: The Good, The Bad, And The Truth About Debt
The key to using debt is knowing how to borrow wisely and how to pay back the money.

Lesson 16: Know How Your Wealth Is Stolen
There are four things that steal your wealth: Taxes, debt, inflation, and retirement. Understand how to use these wealth-stealing forces to make money rather than lose money.

Lesson 17: Know How To Make Mistakes
It’s impossible to learn without making mistakes along the way. Learn the lessons of those mistakes, and do not let them take you out of the game. Failure is a learning opportunity.