My rich dad used to enjoy working in his garden. Though he was wealthy and didn't need to, he said he liked the work because it reminded him that no matter how rich you are, you're never too good to get your hands dirty. He also liked gardening because it was a metaphor for how he saw the world. "Building something beautiful takes much toil and patience," he said. "You cannot rush gardening. You must plant well, understand what you're doing, and pull all weeds up by their root." Explaining further he said, "Many people want to quickly identify problems in their life and then cut them down. The problem is that, like a weed, they never dig up the root. So, later the same problem comes up. In life and in money, you must understand the root of your problems."
This week a great article by Barbara Kiviat entitled "The Case Against Home Ownership" was published in TIME magazine. In that article, Ms. Kiviat rightly identifies, in so many words, that the myth of your house being an asset has contributed greatly to our current financial crisis. "But the dark side of homeownership is now all too apparent: foreclosures and walkaways, neighborhoods plagued by abandoned properties and plummeting home values, a nation in which families have $6 trillion less in housing wealth than they did just three years ago. Indeed, easy lending stimulated by the cult of homeownership may have triggered the financial crisis and led directly to its biggest bailout, that of Fannie Mae and Freddie Mac…For the better part of a century, politics, industry and culture aligned to create a fetish of the idea of buying a house."
Earlier this month I blogged (Repeat After Me: Your House Is Not An Asset) about the sorry state of the residential real estate market, and I revisited some of the basic principals that are the foundation of the Rich Dad message. To sum up the housing numbers again:
- Almost $6 trillion in housing wealth has been lost since 2005
- Home values have dropped 30 percent
- Existing home sales dropped 27 percent over the previous month
- Housing inventories stand at 12.5 months, over twice what's considered healthy
With numbers like these, I can see why people such as Ms. Kiviat are realizing that the American dream of becoming wealthy through homeownership is one of the biggest lies ever perpetrated on the US public. Unfortunately for many, hindsight is 20/20. Thankfully, the Rich Dad community has known for years that your house is not an asset.
The Real Problem
There's no denying that the residential housing market is a problem. In fact, it's a now a millstone that threatens to pull the whole economy down into a double dip recession. But even though housing is a problem, it's not the real problem. The real problem is the fundamental lack of financial education in America. The real problem is that people don't fundamentally understand the difference between an asset and a liability. I find it hard to believe that a financially educated population that understood your house is not an asset but rather a liability would have participated in the real estate frenzy that occurred early in this decade.
Taking the lessons my rich dad taught me from his garden, the fundamental problem, the root problem, is that people don't understand how money works.
Digging Up the Root
I'm afraid that until we address the root of our financial problems, we'll continue to see huge booms and busts. Until we see comprehensive financial education in our schools, we'll continue to see a population of people who think their house or any other host of liabilities are assets. While it's important to identify byproducts of the problem, like the horrible state of the residential housing market, it's much more important to identify why those byproducts grow up in our financial soil—and to pull that root up mercilessly.
The path to wealth is one of constant learning and toil. Though I've often been accused of "get rich quick" schemes, I can confidently and proudly say that has never been the Rich Dad message. The Rich Dad message is one of continual financial education and of acquiring cash flowing assets over the course of your entire life. Security does not come from hoping prices go up, but from being financially intelligent enough to search for, find, and acquire solid assets that provide income every month for a lifetime. That is not easy. It is not quick. And it is not something the ordinary person can do if they rely on the education they received in school.
Tend Your Garden
Today, you have a choice to do surface work on your garden or to instead get down on your hands and knees, roll up your sleeves, and begin the hard work of tending your financial garden well. While it will be hard work, it will be work that will pay off for the rest of your life. By pulling up the roots of your financial problems, you'll assure they won't come back in areas and times you least expect.