Rich Dad, Poor Dad

Over lunch last December, a friend of mine was sharing some thoughts about a book he had just read, Rich Dad Poor Dad by Robert Kiyosaki. Mr. Kiyosaki said that your house was a liability. This simple statement intrigued me because it was so against what I believed in. I was so intrigued that I borrowed the book from another friend. (I was too cheap to buy it!)

The author did say, "The home is a liability…" because even if you have no mortgage on it, you still had to pay taxes, utilities and maintenance, etc. A good point but one still had to live somewhere and compare what one had to pay in rent versus a mortgage. Another point he had was to live within your means and only buy luxury if you have a surplus. Generally, I would still buy a home in the US if on an after-tax basis I pay less with mortgage payments than in rental payments.

However in the Philippines, two things are different. One, the mortgage rates in the Philippines are quite high. Despite the rates a decade ago, Philippine mortgage rates are still in double digits and the rates are only fixed for at most five years. Rates are a function of a bank’s cost of funds, bankers’ margin plus bankers’ reserve. (Let’s see, cost of funds one to two percent versus rates at 15 to 18 percent means 13 to 16 in bankers’ margin.) Another major difference is real estate mortgage is not tax deductible in the Philippines.

Banks in the US can foreclose in less than three months, while Philippine banks can’t do it for at least one year, causing the bankers to build up a high reserve and therefore, increase the mortgage rates. So if we want the Philippine real estate market to boom, Congress needs to pass laws that will allow the banks to legitimately foreclose sooner as well as make mortgage interest deductible from taxes.

The rest of the book was quite interesting and just as thought-provoking because of its simple elegance.

– Poor Dad works for money while Rich Dad has money work for him.

– Poor Dad says I can’t afford it while Rich Dad figures out how to afford it.

– Assets are things that put money in your pocket while Liabilities take money out of your pocket. (I wonder what Kiyosaki thinks of government because it takes a big chunk of money out of our pockets.)

– Your mind is the most powerful computer in the world. Exercise your mind. Learn as much as possible and apply it.

The author encourages his readers to live within their means and only spend on luxury goods only if they have a surplus. I guess our government leaders need to read this book to learn some of the basics of finance.

The biggest drivers of an economy are the small and medium-scale enterprises. They create and distribute wealth as well as drive up the employment of any economy. We need to build a nation of entrepreneurs.

My Two Cents: A friend of mine once said, "We are too busy making a living, to make any real money." However, we should not have money as an objective but look for a business that we are passionate about. As another friend said, "Do the right things, and the numbers will follow." And lastly, we need to give back and share our blessings with the less fortunate.

Clarification. In my last column, I mentioned BPO as a silver lining. My apologies, BPO stands for Business Process Outsourcing. Other people refer to it as IT-enabled services like call centers and back-office processing. Instead of just moving manufacturing to cheaper labor locations, global companies are now figuring out that Philippine white-collar workers can deliver the same output for less money.

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Dickson Co is CFO (C is for Cheap) for both Dfnn and HatchAsia.com. For comments and suggestions, e-mail [email protected].