In Chapter 2, Kiyosaki delves into a fundamental financial concept: the difference between assets and liabilities. He emphasizes that accumulating wealth is not solely about earning a high income but rather about effectively managing what one is able to retain. Kiyosaki defines assets as possessions or investments that possess value, generate income, appreciate in value, or do both in a way that contributes positively to one’s financial position. In contrast, liabilities are financial obligations that drain money from one’s pocket due to associated costs and obligations. As Kiyosaki highlights the financial struggles of many middle-class families, he explains that their balance sheets “are loaded with liabilities” (66). Kiyosaki next explains that financial illiteracy is what leads people to accrue liabilities and struggle financially, entrapping them in the Rat Race.

Kiyosaki explains that, contrary to what people typically learn, a personal residence property is not necessarily an asset. It typically doesn’t generate income and may not appreciate enough to offset ownership expenses in order to generate passive income. This perspective challenges a conventional belief, especially among the middle class, that owning a home automatically equals wealth accumulation.