Rich Dad, Poor Dad makes for a good read, but Singaporeans shouldn’t rush to emulate the examples contained within.
Robert Kiyosaki’s Rich Dad, Poor Dad has been popular for some time. While most of the personal finance information presented is sound, there are some that should be taken with a grain of salt. Here are some things to watch for.
Not Made for Singapore’s Context
While the general ideas in Rich Dad, Poor Dad are sound (they are the basics of what most financial planners will teach you), the book gives questionable examples. Perhaps it’s due to Rich Dad, Poor Dad being targeted for an American audience. In any case, Singaporeans need to pay attention to a few things.
First, Kiyosaki’s methods of tax avoidance don’t work in Singapore. You absolutely should not register a company, buy a Porsche, and claim it as a tax deduction. The Inland Revenue Authority of Singapore (IRAS) will notice if your “company” seems to have a lot of high cost personal items (like a condo and a sports car), which are further claimed as business expenses.
Also, note that the penalties for underpaying taxes in Singapore can be up to 300 per cent of the unpaid amount, in addition to a S$10,000 fine, and up to three years in jail.
Second, Kiyosaki’s examples of “flipping” real estate doesn’t work well in Singapore. HDB flats have a minimum occupancy period of five years, during which you can’t sell or rent out the flat. Even for private property, there’s a Sellers Stamp Duty (SSD).
If you sell a house in the first year, you would pay a tax of 12 per cent of the sales prices. This is reduced to eight per cent in the second year, and four per cent in the third year.
Even if you resell a S$1.2 million house on the third year, you would pay a whopping SSD of S$48,000. So please don’t rush to buy distressed properties (called mortgagee sales locally), and expect you’re going to immediately resell it for profit.
While the general advice in the book may be sound, be wary of the actual examples in it.
Quitting Regular Employment is Risky
The book has a disturbing tendency to berate regular employment. According to Kiyosaki, employment is a sort of prison that stops you from ever getting rich.
This isn’t entirely accurate – there are plenty of people who have worked to the top of their careers, and earn six digit figures every year. But that’s not the main problem with the advice.
Kiyosaki makes very little mention of the risks taken by the self-employed, or the business owner.
For example, in Singapore, being self-employed means you have a contract for service with the person hiring you. This is different from a contract of service, which is how the Ministry of Manpower (MOM) defines employment. This means that the self-employed are not protected by many of our labour laws.
If you’re self-employed and a client doesn’t pay you, for example, you have to take legal action yourself. MOM can’t go after your client on your behalf, as you’re not an employee.
As for business owners, note that 50 to 70 per cent of new businesses will fail within the first 18 months. Businesses need to be highly capitalised – remember that you will probably make a loss for the entirety of the first year, while still having to pay for rent, manpower, inventory, marketing, and so forth.
The failure of your business can also mean large, unpaid debts; and there’s no guarantee you can go back to your old job at equal pay.
The Rich Do Work, Quite Hard in Fact
There is no more absurd advice in Rich Dad, Poor Dad than “the rich don’t work for money”. It’s the minority of rich people (lottery winners and trust fund babies) who don’t work for their money.
Take a look at the richest people in Singapore, and you’ll notice one thing they have in common: they’re not people who spend all day lounging in front of a TV. Their offices are not for show, and sometimes the jobs of hundreds (if not thousands) of employees depend on their work.
The idea of living purely off your assets is a fantasy. Even high net worth individuals need to take a hand in their businesses; and given the large sums they’re dealing with, they may have to work even harder.
Buying Assets Isn’t As Simple As Portrayed
It doesn’t take an expert to tell you that you should buy assets, and avoid liabilities. That’s a common sense concept. The problem is being able to tell an asset from a liability, and Rich Dad, Poor Dad’s definitions (e.g. an asset is cash generating) are too simplistic.
Consider your house, for example. If it’s your only home, it’s probably not generating any cash. Does that mean your house is a liability? That may not be accurate, as some homeowners who bought in 2009 would have seen around 48 per cent appreciation, even given the current property slump.
Or what happens if you buy a house to rent out? You may think that’s an asset. But due to the Additional Buyers Stamp Duty (ABSD), even Singapore citizens will be paying a seven per cent tax on the second property. Coupled with falling rental income, this could turn the house in a liability (the monthly mortgage may be way higher than the rental income).
Buying assets is the right idea, but it’s very tough to decide what’s an asset; and when Rich Dad, Poor Dad tries to define it (the examples are almost all in real estate), it does so with bold, often dangerous assumptions.
Don’t Follow The Specific Examples
Again, the basic lessons in Rich Dad, Poor Dad are more or less sound. However, you’d do well to avoid trying to follow any specific examples in the book.
As an aside, note that even Kiyosaki has admitted the “rich dad” is about as real as Harry Potter.
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By Ryan Ong
Ryan has been writing about finance for the last 10 years. He also has his fingers in a lot of other pies, having written for publications such as Men’s Health, Her World, Esquire, and Yahoo! Finance.