Financial Literacy Made Simple 167 Income Statement Balance Sheet I am not an accountant, yet I have attended several classes on accounting. In most of those classes, what struck me was how the instructors focused on one of the documents, but not the relationship between the two documents. In other words, the instructors never explained why one document was important to the other. Rich dad thought the relationship between the income statement and the balance sheet was everything. He would say, "How can you understand one without the other?" or, "How can you tell what an asset or liability really is without the income column or the expense column?" He would go on and say, "Just because something is listed under the asset col- umn does not make it an asset." I think that statement was the single most important point he made. He would say, "The rea- son most people suffer financially is because they purchase li- abilities and list them under the asset column. That is why so many people call their home an asset when it is really a liabil- ity." If you understand Gresham's Law, you may know why such a seemingly minor oversight can cause a lifetime of fi- nancial struggle instead of financial freedom. He would also say, "If you want to be rich for generations, you and the ones 168 Rich Dad's Guide to Investing you love must know the difference between an asset and a li- ability. You must know the difference between something of value and something of no value." After Rich Dad Poor Dad was published, many people asked, "Is he saying that a person should not buy a house?" The answer to that question is "No, he was not saying do not buy a house." Rich dad was only emphasizing the importance of being financially literate. He was saying, "Don't call a liabil- ity an asset, even though it is your house." The next most asked question was, "If I pay off the mortgage on my house, will that make it an asset?" Again, the answer in most cases is "No, just because you have no debt on your home, it does not necessarily make it an asset." The reason for that answer is again found in the term "cash flow." For most personal resi- dences, even if you have no debt, there still are expenses and property taxes. In fact, you never truly own your real estate. Real estate will always belong to the government. That is why the word is "real" (meaning "royal" in Spanish), not physical or tangible. Property has always belonged to the royals. Today it belongs to the government. If you doubt that statement, just stop paying your property taxes and you will find out who really owns your property, with a mortgage or without a mort- gage. The non-payment of property taxes is where tax-lien certificates come from. In Rich Dad Poor Dad, I wrote about the high interest that investors obtained from tax liens. Tax liens are the government's way of saying, "You may control your real estate, but the government will always own it.