- So welcome back its Robert Kiyosaki

with my dear friends' daughter here Alexa.

And we're talking about Millenials and money,

and we gone through some lessons.

I don't know how many more,

but let's continue on with another lesson here.

And so we were talking about you know

assets and liabilities, right?

- Yes.

And when you read Rich Dad Poor Dad

I said your house is not an asset what did you think?

- Well, I think that's a conception

that many people believe,

but as you demonstrated the last seminar

that we went to in Argentina.

My mom had her properties and she

converted them into assets.

Correct.

- I think it just depends on what you do with it

and it would be great if you could show us

how to turn your house into an asset.

It's very its really fundamentals.

If I could go back I probably covered it earlier,

(marker rattling)

but it's a crucial question and this is what

financial education and financial literacy really is.

Again it starts with the financial statement and I would say

probably 95 percent of all college graduates don't know what

a financial statement is.

You took an accounting course right?

- Yeah, I did.

I know you go through parts of this,

but I say to young people like you there's six basic words

to financial literacy and financial education.

And the six words again are income,

expense, asset, liability.

See I don't really care about my FICO score

a fico score just basically registers

are you trustworthy with borrowing money,

but a bank will never sel.

I borrow in the hundreds of millions of dollars.

(chuckling)

A fico score not gonna get me there okay.

It's so it's kind of a ruse I mean I don't its,

it's important but not for me.

So these are the four words income, expense,

asset, liability.

Then the last two words are the words cash flow.

And that's, why the game is called cash flow

(marker squeaking)

and the secret to being rich is not a college education,

but can you control cash flow.

And this is what cash flow in looks like.

So this here you need this

income, expense, asset, liability.

(marker squeaking)

Again this is you get a job and this is my poor dad,

go to school, get a job, get your PHD.

And so this here is cash flow so income comes in

and it goes out this way.

First line of expense is tax,

but this is a poor persons cash flow pattern.

It's not how much money you make most people

you know they.

I don't care if you what you have a Ph.D.

or no school at all.

They can't control the cash flowing out

through their expenses so that's,

why people like Susie or men say

cut up your credit cards, live below your means

cause you're a spend-a-holic.

So that's a poor person.

This is a middle-class persons cash flow patterns

and this is where the house comes in.

They, first thing you know most kids do

when they get pay raise and all that

they buy themselves a bigger house,

now my house is an asset.

Who tells you that?

Your real estate agent of course!

- Yeah.

(Alexandra giggling)

Right cause they they want to give you

this false sense of security while you're getting screwed.

- Exactly.

Ya know but when you look at what happens with the house

a personal.

I mean a personal residence that I live in

the money comes in it goes out and this is middle class,

but also goes out through a mortgage.

Mortgage payments, oh but I don't have a mortgage.

You still have taxes you still you know.

Hawaii just raised the property taxes on me.

Which is probably why I'm gonna sell.

I'm gonna get out of Hawaii,

but you have taxes and you have upkeep

so monies always flowing out.

So that's why your house is not an asset it's because

its taking money from your pocket.

So very simply said assets put money in my pocket,

liabilities take money from my pocket.

And then this here is,

so I'm not saying don't buy a house

but here is a house that.

And I started when I was 25 bought my first house

it was an apartment with an investment property.

I didn't live in it, I rented it out

and it put money in my pocket.

So very simple the definition of asset and liability

is not the house or this, its cash flow.

Where is the cash flowing?

So as a young person

(Robert coughing)

and to all millennials or if you're old

financial intelligence is the ability to control cash flow.

And that's what they don't teach you at school.

They tell you to go to school,

get a job.

First thing is tax you know,

you'll pay most of your money will go out through taxes,

in your lifetime.

Then they tell you to buy a house, a car.

Cars an asset, no cars a liability.

You got insurance, gas, upkeep, and all this.

Now if you buy a, a taxi car it could be an asset,

its cash flow.

And that's very simply it,

so this is a poor person.

Money goes out there's a lot we,

we just interviewed some national football league players

who make millions of dollars in their 20s.

And most of them are broke in two years

because they can't control cash flow.

Intelligence IQ is can you control cash flow

not your college degree.

College degrees are important,

but they're not gonna teach you this.

So the cash flow game,

trains you over and over and over again

to get your money in here to get the cash flow this way.

So I started with this, cost me 18,000 dollars.

I paid for the credit card and I put 25 dollars in my pocket

okay.

It's an infinite return because the cash flow paid

for the mortgage, it paid the expenses, pays the operating

costs and I still made 25 dollars.

Kim's first year was the same,

hers wasn't 18,000

it was 50,000, 45,000 and it put 25 dollars in her pocket,

but Kim now owns 6,500 rental properties.

And she pays no tax because the income comes from here.

- Mm-hmm

If you have a job you pay tax,

but income the rich get richer

because when you have asset income

taxes are less.

You can get it down to zero if you want.

But that's financial intelligence,

but can you control cash flow.

Okay, so say that again.

Assets what?

- Assets put money into your pocket,

liabilities take money out of your pocket.

And so as a young person you just focus on that

so when you buying a new house,

you're gonna say is this gonna take money or put money?

You buy an apartment house is it gonna take money

or put money that's it, its cash flow.

Six most important words for financial intelligence and IQ

is income, expense, asset, liability,

but its really cash flow.

Now if I could bring up a more horrible subject is,

do you think people can be assets or liabilities?

- I think they could be both, to be honest.

So for most young people they fall in love,

they get married, they have kids.

Is a child an asset or liability?

- A child is definitely a liability.

I'm not saying don't have kids,

but you gotta think the kid is expensive

and they don't get cheaper.

They get more expensive every year,

you know then they go to college

and then it gets even more expensive.

So a human being now this sounds horrible to all those

socialists and communists out there,

but the fact is kids cost money.

But as an old guy, I want you to think about this

as I get older as people get older

family members become liabilities.

So I have a friend whose mother thank god she had

long term I don't know what they call it,

but they just canceled it on her.

She can go to a old age home and I think

the price is 18,000 a month.

Most so that as a young person as your parents get older

the question is can I afford to spend 20,000 dollars a month

on my mom or my dads' long term healthcare, yes or no?

- No, not right now.

No so.

- No.

And this is gonna happen to my generation

many people don't realize,

but there brothers or sisters or sisters kids

and all this become liabilities to them.

So as a person whose fairly well off,

I'm and Kim and my friends are thinking about

two legged liabilities.

So I know today that if my sisters become ill

I'm the one with the money and it's my responsibility

to pay for them.

Same as my brothers and their kids.

So these are things that people don't think about a lot of

times is what happens not only as they grow up,

but what happens as they age.

Statistics show the average person in my generation

lets say have a million dollars.

80 percent of that million dollars

will be gone the last two years of life.

Because medical expenses go through the roof and today

insurance companies are canceling.

I forgot the name of it,

but my friends' mother it was just canceled.

So he doesn't have 18,000 a month

so he had to bring his mother into his house

and you know create another room and all this.

Well, I love her which he does but shes a big liability

and all he had was savings.

So the savings are being depleted going out this way, okay?

So with your question about houses and people,

but people are also assets and liabilities.

For most people with our favorite subject,

a 401K is it asset or liability?

- From what I've learned from you

its definitely a liability.

Or an IRA or a pension cause it's always going out this way.

There's no guarantee it'll be there.

So this is the basic of financial intelligence,

financial literacy stuff like this.

Another thing about people is you have a bad advisor,

like a bad financial planner, or a crook,

or a business partner that's a crook,

a wife that's a crook and all of that.

They can be human liabilities.

I have two friends right now who just joined

a million-dollar club.

They married beautiful women, got divorced

and the women is now costing a million dollars a year

in alimony.

So their beautiful wife and the child support it's a million

dollars going and she's only 40 years old.

So she has a whole pile of boyfriends,

but it's costing him a million dollars a year

for her boyfriends.