Tag: fractional reserve system

Second Chance: For Your Money, Your Life, and Our World by Robert Kiyosaki

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Hello there, and welcome to another book-learning episode. Today, we’re going to talk about one of my favorite author’s newer books. Robert Kiyosaki is famous for his Rich Dad Poor Dad brand that teaches financial literacy, and today we’re going to look at his book Second Chance.

I’ve learned a ton from Mr. Kiyosaki, and my brand is even following in some of the stuff he teaches—mainly that employees rarely achieve financial independence, and one of the most common ways to achieve it is through entrepreneurship. “I quit my job to help you quit yours, right?”

As I mentioned, today we’re looking at Second Chance: For Your Money, Your Life, and Our World. Now, Mr. Kiyosaki may be upset with me for this, but one way I would describe the book is this: He made some claims and predictions in his 1997 book, Rich Dad Poor Dad, and in others since, and now, in this book, he’s kind of saying “so that stuff came true; are people going to listen to me now?”

Obviously, that’s not all. In my opinion, he’s even bolder with his statements than in any of his other books. A lot of the book is questions and answers, so you feel like you’re sitting in on an interview. An interview with some eye-opening lessons.

Let’s take a look at a quote from the book: “The purpose of modern education was to take poor people and educate them in ways that would create a large middle class of educated workers, executives, professionals, and soldiers… more specifically: employees, consumers, and taxpayers.”

Clearly this is near and dear to my heart, because this is what my business is trying to change. The reason that a lot of people are miserable in their 9-5 is because they don’t know there is another option, and our society has scared them into thinking that they’ll be “failures” if they’re not gainfully employed… That’s why we teach people how to make the leap from employee to entrepreneur in a proven, sensible way.

That quote hits on our first golden nugget of the day. We’ll get more into  our education system and expose some of what’s really going on behind the scenes. Next, we’ll talk about why  savers are losers. Don’t worry, you’re not a loser in that sense if you’re trying to save your money, but you may find that you’re losing money. Last, we’ll hit on the largest, recurring theme that I’ve found in Robert’s teachings, and that’s that  the poor work for income, while the rich work for assets.

Let’s dive into our education system, and how it’s failed you. Without getting into what some people may say is conspiracy talk… there are some who believe that those who are in power have rigged the system to remain in power. If you’re interested, I’ll let you research a little about the Robber Barons, and the impact some of them had on our education system.

But, the point is, especially during the industrial revolution, our economy needed many many bodies for hard labor. Enter employees. If you didn’t own a steel plant, you could work at one to make money to feed your family.

The American dream became about working harder to earn more money to buy more things like cars and houses. That’s still pretty much what it is today. The problem is that this put the focus of the average American on material things that didn’t generate more income for them. These are what Kiyosaki calls liabilities. Enter consumers.

And, let’s not forget that before you can buy anything—in fact before you even get your money—the government is taking it’s more-than-fair cut. Enter taxpayers. The kicker is that, as an employee earns more money, it’s taxed at a higher rate. Compare this with someone who owns the steel plant or rental units and other business investments to earn passive income, which is taxed at a lower rate.

So, our education system teaches us how to be a lot of things, but one that it doesn’t teach is how to be We could dig a lot deeper if we wanted… Does our society need lower-paid workers? Could the government change this? Will the increase in machines and automation change it? Let me know what you think.

Let’s move on to why savers are losers, and debtors are winners. This is a great time for me to recommend that you buy and read this book right now. I’m going to highlight this point, but the book goes into more detail and gives more examples. I’ll just try to paint a picture:

Today’s banking system uses what’s called the Fractional Reserve System. Simply put, this means that a bank can loan out some multiple of the money it actually has in it’s vault. Currently, the multiple is about 10X. Put another way, a bank has to reserve 10% of it’s loans in actual cash on hand.

Here’s what this looks like in action. First, your parents teach you that you should save your money. Second, you get $100 from grandma for your birthday and put it in the savings account. Over the year, you earn  1% on your savings account (if you’re lucky), which totals $1. In that same year, the bank loaned out  10 X your $100, or $1,000, and earned something more like 10% on it, which totals $100.

Now, if you don’t already feel used enough, here’s the kicker: Because the bank has created all this extra money in the economy now, your $100, and especially the $1 you earned, isn’t worth as much as it was at the beginning of the year. This is called inflation. The US government aims to keep inflation around 2% annually, so you have $101 to purchase what now costs $102, and the bank has doubled its money. This is why savers are losers.

Moving on… let’s talk about income vs. assets, and how this differentiates the poor from the rich. The poor focus on getting more income, so they can eat, pay their bills, and basically survive. In between is the middle class, which has enough income to pay their bills with some left over to buy cars and houses and plasma TVs. As they make more income, they use it to buy these liabilities.

A liability is the opposite of an asset, and the only thing we need to understand to grasp this concept is cash flow. If something puts cash in your pocket, it’s an asset. If it takes cash out, it’s a liability. A simple example of a liability, especially if you buy it with a loan, is a  car, because it costs you something every month. A good example of an asset is a rental property, because your renters (hopefully) give you money every month.

The poor and middle class focus on earning more income, so they can buy more stuff. The rich focus on acquiring assets, because these assets generate more income, which allows them to acquire more assets, and so on and so forth. Assets beget assets. The point at which passive income from those assets pay all your living expenses is called financial independence, and it’s what we should all strive for. Another word I use for it is

Ok, I hope this stuff isn’t too depressing. But, maybe it’s just what you need as a wake-up call. If you’ve suspected that the whole 9-5 isn’t the best way to do things, you’re right. And, if you’ve struggled to find another way, it’s not your fault—the system really is against you. But, take a deep breath, and instead of getting depressed, use this knowledge as motivation to go out and learn more, do more, and build a better future. Arm yourself with knowledge, and beat the system.

That being said, let’s look at today’s exercise. Comment on this, so you drill the knowledge into your head and set your intentions for the future. What do you wish you’d learned in school? This doesn’t have to be around finances… I think there’s plenty of room for more.  2. Do you save money or do you spend it? And, remember that spending can come in many forms.  3. What kind of assets do you want to invest in? Businesses, real estate, commodities, some kinds of stocks, anything that will put cash in your pocket!

Go out, and take your freedom. And let us know how we can help you do it! Thanks for watching, and I’ll see you next time.