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Increase Your Financial IQ

Increase Your Financial IQ

BOOK INFORMATION

  • Title: Rich Dad’s Increase Your Financial IQ: Get Smarter with Your Money
  • Author: Robert T. Kiyosaki
  • Year: 2008
  • Length: 224 pages
  • Tags: Personal Finance/Investment/Self-Help

HOOK

The rules of money changed in 1971. Traditional financial advice is now obsolete. Your survival depends on developing the five components of financial intelligence that separate the wealthy from everyone else.

ONE-SENTENCE TAKEAWAY

Financial intelligence has five measurable components: making, protecting, budgeting, leveraging, and improving your money; mastering these is essential in an economy where old advice fails.

SUMMARY

“Increase Your Financial IQ” addresses how most people lack financial education for the modern economy. Kiyosaki argues schools fail to teach financial literacy. This leaves people vulnerable to bad decisions, especially after the rules of money changed in 1971. That’s when President Nixon detached the dollar from the gold standard.

The author’s main thesis is that financial intelligence is not innate but a set of measurable skills. He presents financial intelligence as five distinct components or “Financial IQs”: making more money, protecting your money, budgeting your money, leveraging your money, and improving your financial information. Each area is a specific skill you can measure and improve.

Kiyosaki supports his argument with historical context. He explains how monetary rules changed, turning savers into losers and debtors into winners under the new capitalism. He provides evidence through personal experiences, economic trends, and analysis of why traditional advice like “work hard, save money, get out of debt” is now dangerous.

What makes this book unique is its framework for breaking down financial intelligence into measurable components. Unlike many personal finance books that offer generic advice, Kiyosaki provides a structured approach to developing specific financial skills. The book’s contribution lies in explaining how the rules of money have changed and why developing these five financial IQs is essential for financial survival today.

INSIGHTS

  • The rules of money changed in 1971 when the dollar left the gold standard. Money became a currency that must circulate to hold value.
  • Traditional advice like “save money” is now obsolete and dangerous. Currency devalues over time.
  • Financial intelligence breaks down into five measurable components you can develop systematically.
  • Poverty is having more problems than solutions. Increasing your financial IQ gives you more solutions.
  • It’s not what you invest in that makes you rich, but what you know about those investments. Your financial intelligence is the true asset.
  • Many financial experts don’t know if their own retirement plans will work. That’s why they continue working.
  • The government, bankers, brokers, and even spouses can be “predators” seeking your money. Financial protection skills are essential.
  • Leverage is not inherently risky. It becomes risky when people invest in assets they don’t control.
  • Information is the great equalizer. Even the poor can become wealthy with the right information and a computer.
  • Rules provide valuable information about how the game of money is played. Without rules, assets decline in value.

FRAMEWORKS & MODELS

The Five Financial IQs Framework The core framework breaks down financial intelligence into five measurable components:

  • Financial IQ 1: Making More Money - Increasing income by solving problems and providing value
  • Financial IQ 2: Protecting Your Money - Shielding wealth from predators like taxes and inflation
  • Financial IQ 3: Budgeting Your Money - Managing cash flow and creating a surplus by prioritizing assets
  • Financial IQ 4: Leveraging Your Money - Making your money work harder through investments and leverage
  • Financial IQ 5: Improving Your Financial Information - Gathering, analyzing, and applying financial information effectively

This framework provides a structured approach to developing financial intelligence rather than treating it as a mysterious trait.

The New Capitalism Model Kiyosaki explains how the economy changed after 1971:

  • Old Capitalism: Money was backed by gold, saving was smart, debt was avoided, currency was stable
  • New Capitalism: Money is currency not backed by anything, saving is foolish, strategic debt is powerful, currency devalues

This model explains why traditional financial advice no longer works and why new strategies are needed for wealth building.

KEY THEMES

  • Financial Education as Survival: Schools don’t teach financial literacy, leaving people vulnerable in a money-driven world.
  • The Changing Rules of Money: Detaching the dollar from gold in 1971 fundamentally altered economic realities and wealth-building strategies.
  • Financial Intelligence as Measurable: Financial skill is not innate but consists of five specific, developable components.
  • Predators and Protection: Various entities seek to take your money. Financial intelligence serves as protection.
  • Leverage and Control: The wealthy use leverage safely by maintaining control over investments, while the poor use leverage dangerously without control.

COMPARISON TO OTHER WORKS

  • vs. “Rich Dad Poor Dad”: The original focused on mindset differences between rich and poor. This book provides a structured framework for developing specific financial skills.
  • vs. “The Intelligent Investor”: Graham focuses on value investing principles. Kiyosaki emphasizes broader financial intelligence and the changing economic landscape.
  • vs. “Your Money or Your Life”: Robin focuses on frugality and values-based money management. Kiyosaki emphasizes aggressive wealth building through financial intelligence.
  • vs. “The Millionaire Next Door”: Stanley researches the habits of actual millionaires. Kiyosaki provides prescriptive advice for developing financial skills.
  • vs. “Cashflow Quadrant”: While Cashflow Quadrant focuses on the four types of income earners, this book delves deeper into the specific skills needed to succeed in each quadrant.

QUOTES

“Under the old rules of capitalism, it was financially smart to save money. But in the new capitalism, it’s financial insanity to save a currency.” - This captures the book’s central thesis about how money’s rules changed.

“Ultimately, it is not gold, stocks, real estate, hard work, or money that makes you rich. It is what you know about gold, stocks, real estate, hard work, and money that makes you rich. Ultimately, it is your financial intelligence, your financial IQ, that makes you rich.” - This reveals the book’s core philosophy that financial knowledge is the true asset.

“Poverty is simply having more problems than solutions.” - This explains how increasing financial IQ provides more solutions to financial problems.

“Many financial experts continue to recommend, ‘Work hard, save money, get out of debt, live below your means, and invest in a well-diversified portfolio of mutual funds.’ The problem with this advice is that it is bad advice, simply because it is obsolete advice.” - This highlights Kiyosaki’s controversial stance against traditional financial wisdom.

“Leverage is risky only when people invest in assets that they have no control over.” - This reveals the book’s nuanced view on leverage, distinguishing between safe and dangerous use.

HABITS

  • Continuously learn about money: Make financial education a lifelong habit. Read books, attend seminars, and learn from successful investors.
  • Solve problems to increase income: Focus on solving bigger problems. The size of problems you solve determines your income.
  • Use professional advisors strategically: Hire expert lawyers, accountants, and tax specialists to protect your money from predators.
  • Pay yourself first: Always allocate money to assets before paying expenses. Make wealth building a priority.
  • Study financial statements: Learn to read and analyze financial statements to understand the financial health of investments.
  • Understand leverage: Learn to use leverage safely by maintaining control over investments and understanding the risks.
  • Follow economic trends: Stay informed about monetary policy and market trends to make better financial decisions.
  • Build multiple income streams: Develop various sources of income to increase financial security and accelerate wealth building.

KEY ACTIONABLE INSIGHTS

  • Develop all five Financial IQs systematically: Assess your current level in each area. Create action plans to improve each one. Weakness in any area undermines success.
  • Shift from saving to strategic investing: Instead of saving money, focus on acquiring assets that generate cash flow. Use strategic debt when appropriate.
  • Learn to sell and solve problems: Develop sales skills and problem-solving abilities. These are fundamental to increasing your income (Financial IQ 1).
  • Create a financial protection team: Assemble a team of expert advisors including lawyers and accountants to help protect your wealth from excessive taxation.
  • Implement a “pay yourself first” budget: Structure your finances to automatically allocate money to assets before paying bills.
  • Study investments before investing: Thoroughly research any investment before committing money. Focus on understanding the asset and maintaining control.
  • Use leverage safely: Only use leverage when you have control over the investment and understand the risks.
  • Stay informed about monetary policy: Follow central bank decisions and economic trends to make better financial decisions in the new economy.

REFERENCES

  • Historical analysis of the 1971 monetary policy change when the dollar left the gold standard
  • Personal experiences from Kiyosaki’s career working with major corporations and as an entrepreneur
  • The Cashflow Quadrant concept from his previous books, explaining the four types of income earners
  • Economic principles about currency devaluation, inflation, and wealth transfer
  • Observations of how successful investors protect and grow their wealth
  • Analysis of traditional financial advice and why it has become obsolete
  • Examples of how the government, bankers, and financial advisors operate as “predators”
  • Case studies of successful entrepreneurs and investors who have mastered the five Financial IQs

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