" Rich dad was very much in favor of home ownership. He thought that a home was a secure place to put your money but it was not necessarily an'asset. In fact, once he had ac- quired enough real assets, he lived in a big beautiful home. Those real assets generated the cash flow that allowed him to buy his big beautiful home. The point he was making was that a person should not call a liability an asset, or buy liabilities Financial Literacy Made Simple 169 that he or she thinks are assets. He thought that was one of the biggest mistakes a person could make. He would say, "If something is a liability you'd better call it a liability and watch it closely." The Magic Words Are Cash Flow To rich dad, the most important words in business and in- vesting were cash flow. He would say, "Just as a fisherman must watch the ebb and flow of the tides, an investor and businessperson must be keenly aware of the subtle shifts in cash flow. People and businesses struggle financially because they are out of control of their cash flow." Financial Literacy for a Child Rich dad may not have been formally educated but he had a way of taking complex subjects and making them simple enough for a 9 year old child to understand, because that is how old I was when he began explaining these things to me, even though my wealth has increased. And I must confess that I have not progressed much beyond the simple line drawings rich dad drew for me. Yet rich dad's simple explana- tions allowed me to better understand money and its flow as well as guided me to a financially secure life. Today, my accountants do the hard work and I continue to use rich dad's simple diagrams as my guides. So if you can un- derstand the following diagrams, you have a better chance of acquiring great wealth. Leave the technical accounting work to the accountants who are trained to do such important work. Your job is to take control of your financial numbers and guide them to increasing your wealth. 170 Rich Dad's Guide to Investing Rich Dad's Basics of Financial Literacy Literacy Lesson #1: It is the direction of cash flowing that determines if something is an asset or a liability, at that moment. In other words, just because your real estate broker calls your house an asset does not mean it is an asset. This is the cash flow pattern of an asset. Rich dad's defini- tion of an asset was: 'An asset puts money in your pocket." This is the cash flow pattern of a liability. Rich dad's defini- tion of a liability was: 'A liability takes money from your pocket." Financial Literacy Made Simple 171 A Point of Confusion Rich dad also said to me, "The confusion occurs because the accepted method of accounting allows us to list both as- sets and liabilities under the asset column." He would then draw a diagram to explain what he had just said and say, "This is why it is confusing." He would say, "In this diagram, we have a $100,000 house that someone has put $20,000 cash down on and now has an $80,000 mortgage.