When I was nine years old, I changed schools. I moved from a school in a poor neighborhood to a school for rich kids. I did not know I was poor until I changed schools.
My new classmates lived on private estates, had second homes in the mountains or on the beach, and belonged to the country club and the yacht club. My family lived in a rental house behind the public library, my dad played golf at the public golf course, and we went to the public beach next to the yacht club. After elementary school, most of my rich classmates went on to private schools. I went to the public junior high and high school.
Needless to say, this change in schools changed my life. The good thing about going to elementary school with rich kids was that the rich kids inspired me to become rich. The bad thing was that I learned that going to school would not make me rich.
I knew this because my father had spent most of his life in school. He entered school at age five, eventually earned his PhD, and become Superintendent of Education for the state. He had six brothers and sisters, three of whom were class valedictorians and, in time, earned their PhDs. Two had master’s degrees and one a bachelor’s degree. Yet not one of these six children became rich.
So from an early age, I knew that, at least for me, going to school was not the path to becoming rich. This realization led me to seek out my rich dad, a classmate’s father and local entrepreneur, a man who never finished school, but who would become one of the richest men in Hawaii.
My rich dad began teaching his son and me about money by using the game of Monopoly® as a tool. He often said, “One of the formulas for great wealth is found in this game.” If you have played Monopoly, you know the formula: Four green houses, converted into one red hotel.
When I was 19 years old and attending college in New York, I returned to Hawaii for Christmas break. What did I see? My rich dad’s big red hotel, right smack dab in the middle of Waikiki Beach. He had followed his business plan, which was to simply play Monopoly in real life.
When I completed my tour in Vietnam as a Marine Corps pilot, I began following rich dad’s business plan. I took real estate investment seminars, and in 1974 began buying small “green” houses. Today I am a partner in a major resort hotel in Phoenix, Arizona with five golf courses. I also own apartment buildings, oil wells and other businesses.
Many of my rich classmates went on to good schools. A few did not go to college because they would never need to work. Many were trust fund kids who had the benefit of following their passions and doing what they loved, rather than working for a living.
One of the richest kids in my class inherited his wealth from his great-grandfather. His great-grandfather, who immigrated to Hawaii from Germany in the late 1880s, sold eyeglasses door to door. He was nicknamed “Doc,” although he was not a doctor. With the money he made selling glasses, he began acquiring businesses and large tracts of land in Hawaii.
In the 1980s, my classmate took over the family empire from Doc’s kids. What was left of it, anyway. Today, the empire is gone. Doc’s great grandchildren and their kids fight over what is left, growing angry as the size of the checks from their trust become smaller each year. Most of the great-grandkids went to great schools, but none of them learned how to be the next “Doc,” nor did they have his drive, ambition or skills.
My business partner and friend Ken McElroy has two young sons. He and his wife are giving those boys first-hand, hands-on experiences and education in entrepreneurship — an education that, at their ages, they wouldn’t find in school. According to Ken, parents all over the world are trying to figure out exactly how to transfer wealth, businesses, and knowledge to the next generation. And, in his opinion, it just isn’t happening. And they are distressed because they don’t see signs of initiative, appreciation, creativity, or work ethic in their kids . . . and they don’t know why.
Ken recounts a scenario similar to Doc’s related to generational wealth where the grandfather was, typically, an entrepreneur with limited education, who starts the business to generate income. His survival instinct was strong and he grew the business with long hours and hard work. He saw it as the legacy he would turn over to his children. He wanted, for his children, the things he didn’t have: a good, formal education; the opportunity to earn a good living; a legacy that he could pass on. This next generation, well-educated but driven by ideas of their own, would take over businesses they had no passion for and make management decisions based upon theory instead of experience. The bottom line, according to Ken’s research: Only 16 percent of these family businesses survive to the third generation.
The notion of entitlement rules the day, and many of these grandkids, the third generation, have no interest in ‘the family business.’ In many cases, they have little appreciation for what their ancestors created, higher education is taken for granted and, very often, it is more of a social experience than an educational one. And today’s school system is geared toward producing employees, versus entrepreneurs and business owners who can grow and strengthen the businesses they inherit.
This is not to say that education is not an important step in the development process. But it’s not the only step. Because it isn’t uncommon for parents to hand ownership or a high-paid, senior-level job to their kids on a silver platter. It may seem like a “gift” —the opportunity for a life that their parents and grandparents worked and sacrificed for. But they’re put into a position to manage people, relationships, and money with no practical experience . . . and, for many, it’s a formula for failure.
Since 2004, I have had the opportunity to get to know Donald Trump. We have written two books together and often share the stage in speaking to large audiences interested in increasing their financial education.
And over the years, I have gotten to know Donald’s children, Don Jr., Eric, and Ivanka. They are impressive young adults. Not only are they active in their dad’s businesses, but all three have started their own businesses and charitable foundations. When we discuss business matters, they speak from experience, rather than college textbook theory, which is so often the case with young people their age. They’ve gained wisdom from experience that can’t be found in textbooks or classrooms.
I’ve had occasion to spend some time with Don Jr. and Eric, and have asked them how they came to be such dynamic businessmen. Their reply was simple: “First, we’re interested in business. If we weren’t, our dad would not expect us to go into business. Secondly, we had to work our way up through the business ranks. We did not get much, if any, special treatment, even though the boss was our father. We had to do a good job or we did not move up the ladder of responsibility.” Today, all three of the siblings are part of their dad’s executive team. In their words: “He will listen to our opinions, just as he listens to the opinions of his more senior executives. We still have to prove ourselves. He does not treat us any differently than he treats anyone in his business.” When asked about the future, Don Jr.’s said, “Maybe one of us will take his place someday, but there are no guarantees.”
“And what if any of you don’t do a good job?” I asked.
“He would do exactly what he does on TV. He’d turn to any one of us and say, ‘You’re fired.'”
In many ways, Donald Trump is much like my rich dad. Both men did not leave their children’s financial education up to the school system. When heirs receive money without an understanding of the values that shaped that inheritance, it paves the way for a false sense of entitlement, and, often, the inability to grow wealth and preserve that inheritance. Education is important, but the experience and wisdom to apply it is essential.
In the end, as Ken often says in mentoring his own sons, “It’s not your words that matter, but the example you set, the lessons you teach, and the experiences you share with them.”
Editor’s Note:
In upcoming issues of Jetset, Robert will collaborate with his team of Rich Dad Advisors to present a new feature: Point & Counterpoint… with Robert Kiyosaki. In the September|October issue, Robert teams up with Garrett Sutton, Esq., corporate attorney and asset protection expert.
