It's just like words. It's not the words, but the story the words are telling you." Many people read, but do not understand much. It's called reading comprehension. And we all have different abilities when it comes to reading comprehension. For example, I re- cently bought a new VCR. It came with an instruction book that explained how to program the VCR. All I wanted to do was record my favorite TV show on Friday night. I nearly went crazy trying to read the manual. Nothing in my world is more complex than learning how to program my VCR. I could read the words, but I understood nothing. I get an "A" for recognizing the words. I get an "F" for comprehension. And so it is with financial statements for most people. "If you want to be rich, you've got to read and under- stand numbers." If I heard that once, I heard it a thousand times from my rich dad. And I also heard, "The rich acquire assets and the poor and middle class acquire liabilities." Here ihow to tell the difference between an asset and a liability. 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. To teach pre-teen boys, rich dad kept everything sim- ple, using as many pictures as possible, as few words as possible, and no numbers for years. 80 Rich Dad, Poor Dad This is the Cash Flow pattern of an asset." The above box is an Income Statement, often called a Profit and Loss Statement. It measures income and expenses. Money in and money out. The bottom diagram is the Bal- ance Sheet. It is called that because it is supposed to balance assets against liabilities. Many financial novices do not know the relationship between the Income Statement and the Bal- ance Sheet. That relationship is vital to understand. The primary cause of financial struggle is simply not knowing the difference between an asset and a liability. The cause of the confusion is found in the definition of the two words. If you want a lesson in confusion, simply look up the words "asset" and "liability" in the dictionary. Now it may make sense to trained accountants, but to the average person, it may as well be written in Mandarin. You read the words in the definition, but true comprehen- sion is difficult. Why Teach Financial Literacy? 81 So as I said earlier, my rich dad simply told two young boys that "assets put money in your pocket." Nice, simple and usable. "This is the Cash Flow pattern of a liability." Expense Now that assets and liabilities have been defined through pictures, it may be easier to understand my defi- nitions in words. An asset is something that puts money in my pocket. A liability is something that takes money out of my pocket. this is really all you need to know. If you want to be rich, simply spend your life buying assets. If you want to be poor or middle class, spend your life buying liabilities.