The definitions of words that fall under Financial Education.

It took rich dad only a few minutes to explain what assets and labilities and other things were with these definitions and simple drawings.

Definitions:

INCOME STATEMENT: It stays at the top part of the diagram. It measures income and expenses: money in and money out. 

BALANCE SHEET: It’s called ‘Balance Sheet’ because it’s supposed to balance assets against liabilities. 

ASSET: An asset is something that puts money in my pocket. 

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

NETWORTH: Net worth in the difference between your assets and liabilities, and often filled with a person’s expensive junk as opinions of what things are worth. 

CASH FLOW: Cash coming in (as income) and cash going out (as expense). It is the direction of cash flow that determines whether something is income, expense, asset, or liability. Cash flow tells the story. 

FINANCIAL APTITUDE: What do you do with the money once you make it, how to keep people from taking it from you, how to keep it longer, and how to make that money work hard for you. 

SOCIAL SECURITY: A social welfare or social insurance program commonly funded through automatic payroll deductions to subsidize persons in their old age and with disabilities.

BOND: A debt security in which the authorized issuer owes the holders and is obliged to repay the principal and interest at a later date, termed maturity. 

ENTREPRENEUR: Someone who creates a system to offer a product in order to obtain a profit. Entrepreneurs are willing to accept a level of risk to pursue opportunity and are viewed as fundamentally important in the capitalistic society.

FINANCIAL STATEMENT: A statement of your income, expenses, assets and liabilities. Your "report card" when you leave school and what your banker wants to see before lending you money.

STOCK: The capital raised by a corporation through the distribution of shares. 

CORPORATION: Merely a legal document that creates a legal body without a soul. It's not a big building or a factory or a group of people. Using it, the wealth of the rich protected. 

ROI: Return on investment.

Importance of following this post:(This post contains definitions that has been given in the book)

Why you should follow this:

As an adult, I have difficulty explaining it to other adults. The simplicity of the idea escapes them because they have been educated differently. They were taught by other educated professionals, such as bankers, accountants, and so forth. 

So, what causes the confusion? 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.

We focus on the word “literacy” and not “financial literacy.” 

What defines something to be an asset or a liability are not words. 

Infact, if you really want to be confused, look up the words “Asset” and “Liability” in the dictionary.  You can search on google too.

 I know the definition may sound good to a trained accountant, but for the average person, it makes no sense. 

Rich Dad believed in keeping things Simple. So, he kept these things simple and this made the financial foundation of the Author strong. 

Most accountants and financial professionals do not agree with the definitions, but these simple drawings were the start of strong financial foundations for two young boys.

Bonus:

Facts:

• Illiteracy, both in words and number, is the foundation of financial struggle. 

If people are having difficulties financially, there’s something that they don’t understand, either in words or numbers. 

• The Rich are rich because they are more literate in different areas than people who struggle financially. 

• So, if you want to be rich and maintain your wealth, it’s important to be financially literate, in words and numbers. 

Here is how to tell the difference between an 

asset and liability-

These meanings are simplified and they come with drawings too. 

If you want to fully understand what these things are and start to know about the basics of financial education then you can check the link below. It will take you to another newsletter where you can learn about them in details. 

Link: