Why "A" Students Work for "C" Students and Why "B" Students Work for the Government

1. Financial education is crucial for your child's future success

"Without financial education, many people leave school financially desperate, needy, and greedy."

Schools fail at financial education. Traditional education systems focus on academic and professional skills but neglect to teach students about money management, investing, and wealth creation. This gap in knowledge leaves many young adults unprepared for the financial realities of the real world.

Parents must fill the void. It's up to parents to provide their children with a solid financial education at home. This involves teaching kids about money from an early age, using games like Monopoly and CASHFLOW to illustrate financial concepts, and having regular family discussions about money matters.

Financial education leads to better choices. By understanding how money works, children can make informed decisions about their future careers, investments, and financial strategies. This knowledge gives them a significant advantage in life, potentially leading to greater wealth and financial freedom.

2. Teach your child about the CASHFLOW Quadrant to expand their financial perspective

"Each quadrant is a different classroom teaching different subjects, developing different skills, and requiring different teachers."

The CASHFLOW Quadrant concept. Kiyosaki's CASHFLOW Quadrant divides income sources into four categories:

• E (Employee): Working for someone else
• S (Self-employed/Small business): Working for yourself
• B (Business owner): Owning a system that generates income
• I (Investor): Making money from investments

Different quadrants, different mindsets. Each quadrant requires a different set of skills and mindset. Most people are conditioned to focus on the E and S quadrants, but true wealth often comes from operating in the B and I quadrants.

Encourage B and I quadrant thinking. Teach your children to think like business owners and investors from an early age. This mindset shift can lead to greater financial opportunities and freedom in the future.

3. Understand the three types of income and how they impact wealth

"The rich work for portfolio and passive income."

Three types of income explained:

1. Ordinary income: Wages, salaries (highest taxed)
2. Portfolio income: Capital gains from selling assets
3. Passive income: Regular cash flow from investments (lowest taxed)

Tax implications. Understanding these income types is crucial because they are taxed differently. Ordinary income is typically taxed at the highest rates, while passive income often receives favorable tax treatment.

Focus on passive income. Teach your children to aim for passive income sources, such as rental properties, dividends from stocks, or royalties from intellectual property. This type of income allows for wealth accumulation without trading time for money.

4. Assets put money in your pocket, liabilities take it out

"Your house is not an asset."

Redefine assets and liabilities. Many people mistakenly believe their personal residence is an asset. Kiyosaki argues that true assets generate income, while liabilities cost money. This perspective shift is crucial for building wealth.

Examples of assets vs. liabilities:

• Assets: Rental properties, dividend-paying stocks, businesses
• Liabilities: Personal vehicles, credit card debt, consumer loans

Focus on acquiring assets. Teach your children to prioritize acquiring income-generating assets over purchasing liabilities. This strategy can lead to long-term financial growth and stability.

5. Debt can be good or bad - teach your child to use it wisely

"Since all money is now debt, financial education must include lessons on debt, both good and bad."

Good debt vs. bad debt. Not all debt is created equal. Good debt is used to acquire assets that generate income or appreciate in value. Bad debt is used for consumption or depreciating assets.

Examples of good debt:

• Mortgage for a rental property
• Business loan for expansion
• Student loans for high-ROI education

Leverage debt responsibly. Teach your children how to use debt as a tool for wealth creation, not as a means to fund a lifestyle they can't afford. Understanding the power of leverage can significantly accelerate wealth accumulation when used wisely.

6. The rich focus on acquiring assets and cash flow

"The rich focus on their asset column. The middle class focus on their income column."

Shift focus from income to assets. Many people concentrate on increasing their income through higher-paying jobs. However, the wealthy prioritize building their asset column, which generates ongoing cash flow.

Cash flow is king. Teach your children to think in terms of cash flow rather than net worth. A high net worth on paper doesn't necessarily translate to financial freedom if it's not generating regular income.

Building an asset portfolio:

• Start small with low-risk investments
• Reinvest profits to acquire more assets
• Diversify across different asset classes
• Aim for assets that provide passive income

7. Financial intelligence includes understanding taxes and legal entities

"Financial education must include lessons on taxes, who pays them, and why some people are offered tax breaks."

Tax strategies of the wealthy. The rich often pay lower tax rates because they understand how to structure their income and use legal tax incentives. Teach your children about different tax rates for various income types and legal ways to minimize tax burden.

Importance of legal entities. Introduce the concept of using legal entities like corporations and LLCs to protect assets and optimize tax strategies. Understanding these structures can provide significant financial advantages.

Key tax concepts to teach:

• Tax deductions and credits
• Capital gains vs. ordinary income
• Tax-advantaged investment accounts
• Business expense write-offs

8. Develop your child's emotional intelligence alongside financial skills

"Emotional intelligence is often called the 'success intelligence.'"

Emotional intelligence defined. Emotional intelligence (EQ) involves self-awareness, self-regulation, motivation, empathy, and social skills. These traits are crucial for financial success and overall life satisfaction.

EQ in finance. High emotional intelligence allows individuals to:

• Delay gratification for long-term gains
• Handle financial setbacks without panic
• Negotiate effectively in business dealings
• Make rational investment decisions

Foster EQ development. Encourage your children to practice self-reflection, empathy, and emotional regulation. These skills will complement their financial knowledge and contribute to their overall success.

9. Encourage entrepreneurship and the ability to "print money"

"If you want to be rich, then choose your church and your preacher carefully."

Entrepreneurial mindset. Teach your children to think like entrepreneurs, looking for opportunities to create value and generate income. This mindset can lead to financial independence and the ability to "print money" through business ventures.

Ways to "print money":

• Start a business and take it public
• Create and sell intellectual property
• Develop apps or digital products
• Build a brand and license it

Learn from failure. Encourage your children to take calculated risks and learn from their failures. Many successful entrepreneurs faced setbacks before achieving success.

10. Give your child an unfair advantage through early financial education

"Education is not about being fair. Education is about giving a child an unfair advantage in life."

Start early. Begin teaching your children about money as soon as they can understand basic concepts. The earlier they start, the more time they have to develop financial intelligence and put it into practice.

Create a learning environment. Make your home a place where financial discussions are welcome and encouraged. Use games, real-life examples, and family financial nights to reinforce lessons.

Key areas of focus:

• Money management basics
• Investing principles
• Entrepreneurship skills
• Tax strategies
• Asset protection

By providing your child with a comprehensive financial education from an early age, you're giving them a significant advantage in navigating the complex financial world and achieving long-term success.

Last updated: July 25, 2024