In 1994, I retired at the age of 47, and my wife, Kim, was 37. Retirement does not mean not working. To my wife and me, it means that barring unforeseen cataclysmic changes, we can work or not work, and our wealth grows automatically, staying way ahead of inflation. I guess it means freedom. The assets are large enough to grow by themselves. It's like planting a tree. You water it for years and then one day it doesn't need you anymore. It's roots have gone down deep enough. Then, the tree provides shade for your enjoyment.

In 1990, my best friend, Mike, took over his father's empire and is, in fact, doing a better job than his dad did. We see each other once or twice a year on the golf course. He and his wife are wealthier than you could imagine. Rich dad's empire is in great hands, and Mike is now grooming his son to take his place, as his dad had groomed us.

Lesson Two: Why Teach Financial Literacy?

Mike chose to run the empire and I chose to retire.

Whenever I speak to groups of people, they often ask what I would recommend or what could they do?

"How do I make millions?" I am always reminded of this article I was once given. It goes as follows.

"Is there a good book I would recommend?"

"How do they get started?"

"What should they do to prepare their children?"

THE RICHEST BUSINESSMEN

"What is the secret to success?"

In 1923 a group of our greatest leaders and richest businessmen held a meeting at the Edgewater Beach hotel in Chicago. Among them were Charles Schwab, head of the largest independent steel company; Samuel Instill, president of the world's largest utility; Howard Hopson, head of the largest gas company; Ivar Kreuger president of the International Match Co., one of the world's largest companies at that time; Leon Frazier, president of the Bank of International Settlements; Richard Whitney, president of the New York Stock Exchange; Arthur Cotton and Jesse Livermore, two of the biggest stock speculators; and Albert Fall, a member of President Harding's cabinet. Twenty five years later nine of them (those listed above) ended as follows. Schwab died penniless after living for five years on borrowed money. Instill died broke living in a foreign land. Kreuger and Cotton also died broke. Hopson went insane. Whitney and Albert Fall were just released from prison. Fraser and Livermore committed suicide.

Most people fail to realize that in life, it's not how much money you make, it's how much money you keep. We have all heard stories of lottery winners who are poor, then suddenly rich, then poor again. They win millions and are soon back to where they started. Or stories of professional athletes, who, at the age of 24, are earning millions of dollars a year, and are sleeping under a bridge by age 34. In the paper this morning, as I write this, there is a story of a young basketball player who a year ago had millions. Today, he claims his friends, attorney and accountant took his money, and now he works at a car wash for minimum wage.

I doubt if anyone can say what really happened to these men. If you look at the date, 1923, it was just before the 1929 market crash and the Great Depression, which I suspect had a great impact on these men and their lives. The point is this: Today we live in times of greater and faster change than these men did. I suspect there will be many booms and busts in the next 25 years that will parallel the ups and downs these men faced. I am concerned that too many people are focused too much on money and not their greatest wealth, which is their education. If people are prepared to be flexible, keep an open mind and learn, they will grow richer and richer through the changes. If they think money will solve problems, I am afraid those people will have a rough ride. Intelligence solves problems and produces money. Money without financial intelligence is money soon gone.

So when people ask, "Where do I get started?" or "Tell me how to get rich quick," they often are greatly disappointed with my answer. I simply say to them what my rich dad said back to me when I was a little kid. "If you want to be rich, you need to be financially literate."

He is only 29. He was fired from the car wash because he refused to take off his championship ring as he was wiping off the cars, so his story made the newspaper. He is appealing his termination, claiming hardship and discrimination and that the ring is all he has left. He claims that if you take that away, he'll crumble.

In 1997, I know so many people who are becoming instant millionaires. It's the Roaring '20s one more time. And while I am glad people have been getting richer and richer, I only caution that in the long run, it's not how much you make, it's how much you keep, and how many generations you keep it.

That idea was drummed into my head every time we were together. As I said, my educated dad stressed the importance of reading books, while my rich dad stressed the need to master financial literacy.

If you are going to build the Empire State Building, the first thing you need to do is dig a deep hole and pour a strong foundation. If you are going to build a home in the suburbs, all you need to do is pour a 6-inch slab of concrete. Most people, in their drive to get rich, are trying to build an Empire State Building on a 6-inch slab.

Our school system, having been created in the Agrarian Age, still believes in homes with no foundation. Dirt floors are still the rage. So kids graduate from school with virtually no financial foundation. One day, sleepless and deep in debt in suburbia, living the American Dream, they decide that the answer to their financial problems is to find a way to get rich quick.

Construction on the skyscraper begins. It goes up quickly, and soon, instead of the Empire State Building, we have the Leaning Tower of Suburbia. The sleepless nights return.

As for Mike and me in our adult years, both of our choices were possible because we were taught to pour a strong financial foundation when we were just kids.

I am not as sophisticated because my empire is smaller, yet we come from the same simple foundation. In the following pages, I offer to you the same simple line drawings Mike's dad created for us. Though simple, those drawings helped guide two little boys in building great sums of wealth on a solid and deep foundation.

My rich dad poured a strong financial foundation for Mike and me. Since we were just kids, he created a simple way to teach us. For years he only drew pictures and used words. Mike and I understood the simple drawings, the jargon, the movement of money, and then in later years, rich dad began adding numbers. Today, Mike has gone on to master much more complex and sophisticated accounting analysis because he has had to. He has a billion-dollar empire to run.

Now, accounting is possibly the most boring subject in the world. It also could be the most confusing. But if you want to be rich, long term, it could be the most important subject. The question is, how do you take a boring and confusing subject and teach it to kids? The answer is, make it simple. Teach it first in pictures.

"Rich people acquire assets. The poor and middle class acquire liabilities, but they think they are assets"

"Don't worry right now," said rich dad. "Just let the idea sink in. If you can comprehend the simplicity, your life will have a plan and be financially easy. It is simple; that is why the idea is missed."

Rule One. You must know the difference between an asset and a liability, and buy assets. If you want to be rich, this is all you need to know. It is Rule No. 1. It is the only rule. This may sound absurdly simple, but most people have no idea how profound this rule is. Most people struggle financially because they do not know the difference between an asset and a liability.

When rich dad explained this to Mike and me, we thought he was kidding. Here we were, nearly teenagers and waiting for the secret to getting rich, and this was his answer. It was so simple that we had to stop for a long time to think about it.

"You mean all we need to know is what an asset is, acquire them and we'll be rich?" I asked.

"What is an asset?" asked Mike.

Rich dad nodded his head. "It's that simple."

It took our rich dad only a few minutes to explain what assets and liabilities were.

Rich dad smiled. "Because people do not know the difference between an asset and a liability."

I remember asking, "How could adults be so silly. If it is that simple, if it is that important, why would everyone not want to find out?"

Rich dad believed in the KISS principle -- "Keep It Simple Stupid" -- so he kept it simple for two young boys, and that made the financial foundation strong.

"If it's that simple, how come everyone is not rich?" I asked.

As an adult, I have difficulty explaining it to other adults. Why? Because adults are smarter. In most cases, the simplicity of the idea escapes most adults because they have been educated differently. They have been educated by other educated professionals, such as bankers, accountants, real estate agents, financial planners, and so forth. The difficulty comes in asking adults to unlearn, or become children again. An intelligent adult often feels it is demeaning to pay attention to simplistic definitions.

Many people read, but do not understand much. It's called reading comprehension. And we all have different abilities when it comes to reading comprehension. For example, I recently bought a new VCR. It came with an instruction book that explained how to program the VCR. All I wanted to do was record my favorite TV show on Friday night. I nearly went crazy trying to read the manual. Nothing in my world is more complex than learning how to program my VCR. I could read the words, but I understood nothing. I get an "A" for recognizing the words. I get an "F" for comprehension. And so it is with financial statements for most people.

As young boys, rich dad said, "What defines an asset is not words but numbers. And if you cannot read the numbers, you cannot tell an asset from a hole in the ground."

We focus on the word "literacy" and not "financial literacy." What defines something to be an asset, or something to be a liability are not words. In fact, if you really want to be confused, look up the words "asset" and "liability" in the dictionary. I know the definition may sound good to a trained accountant, but for the average person it makes no sense. But we adults are often too proud to admit that something does not make sense.

"In accounting," rich dad would say, "it's not the numbers, but what the numbers are telling you. It's just like words. It's not the words, but the story the words are telling you."

So what causes the confusion? Or how could something so simple be so screwed up? Why would someone buy an asset that was really a liability. The answer is found in basic education.

"This is the Cash Flow pattern of an asset." The above box is an Income Statement, often called a Profit and Loss Statement. It measures income and expenses. Money in and money out. The bottom diagram is the Balance Sheet. It is called that because it is supposed to balance assets against liabilities. Many financial novices don't know the relationship between the Income Statement and the Balance Sheet. That relationship is vital to understand.

"If you want to be rich, you've got to read and understand numbers." If I heard that once, I heard it a thousand times from my rich dad. And I also heard, "The rich acquire assets and the poor and middle class acquire liabilities."

To teach pre? teen boys, rich dad kept everything simple, using as many pictures as possible, as few words as possible, and no numbers for years.

Here is how to tell the difference between an asset and a liability. Most accountants and financial professionals do net agree with the definitions, but these simple drawings were the start of strong financial foundations for two young boys.

The primary cause of financial struggle is simply not knowing the difference between an asset and a liability. The cause of the confusion is found in the definition of the two words. If you want a lesson in confusion, simply look up the words "asset" and "liability" in the dictionary.

Now it may make sense to trained accountants, but to the average person, it may as well be written in Mandarin. You read the words in the definition, but true comprehension is difficult.

"This is Cash Flow pattern of a liability." Now that assets and liabilities have been defined through pictures, it may be easier to understand my definitions in words.

So as I said earlier, my rich dad simply told two young boys that "assets put money in your pocket." Nice, simple and usable.

A liability is something that takes money out of my pocket.

An asset is something that puts money in my pocket.

This is really all you need to know. If you want to be rich, simply spend your life buying assets. If you want to be poor or middle class, spend your life buying liabilities. It's not knowing the difference that causes most of the financial struggle in the real world.