What Is Active Recall and Can It Help You Build Wealth?

You have probably learned more about money than you realize.

You may know that high-interest debt can become expensive, that investing requires patience, and that compound growth rewards time. Yet when a financial decision presents itself, many people still reach for Google, ask someone else what to do, or make an emotional choice. The problem may not always be a lack of information. Sometimes, it is an inability to retrieve what we have already learned.

Active recall, a learning technique built around retrieving information from memory rather than simply rereading it, may offer an overlooked lesson in wealth building: knowledge becomes more useful when you can access it without being reminded. But of course, like many things, nothing is ever that simple. You can know what a Roth IRA is but never remember the contribution deadline or understand debt but still sign an unfavorable financing agreement. You can study investing but sell during a downturn because fear overrides what you previously learned. Accessible knowledge and knowledge as a whole are two different concepts when it comes to wealth building, and experience or circumstance is always going to influence decision-making and ultimately the outcome.

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Many of us have read the book Rich Dad, Poor Dad by Robert Kiyosaki, and since the announcement of his $1.2 billion debt, according to the New York Post, has made headlines, people are divided. So, how can the man who arguably wrote one of the best financial self-help books of our generation be $1.2 billion in debt, and how does that correlate to active recall?

Here’s the unfiltered truth: wealthy people often develop mental frameworks. They ask themselves questions before making decisions: What am I paying for? What is the long-term cost? What happens if this investment loses value? How will taxes affect this? What opportunity am I giving up? Is this an asset, liability, expense, or investment in future income? They are constantly retrieving previous knowledge and applying it to new situations.

Let’s say you watched a TikTok video and learned that you can go to a car dealership with a pre-approved deal in hand and get a new vehicle without spending hours at the dealership. But then, you fall on hard times, and despite knowing that having that pre-approved deal would save you money and time, you go without one, hopeful that your down payment will be enough to get you into that car despite your credit score having plummeted over the past year. But instead of getting a car that is actually worth its price tag, you’re shown a car that’s been marked up 10 times its value and talked into taking it because the dealer would rather sell you something they can still ultimately benefit from, even if you were to default. Then, after a few months, you realize that with insurance, you’re paying around $980 a month. The question then becomes: What exactly am I paying for?

The long-term cost is something many people don’t often analyze. This cost can be as simple as the vehicle I mentioned earlier. The interest on your loan, a.k.a. the bank’s fee for allowing you to borrow money from them to pay for your new car, is around $13,000 over four years, while the actual loan is around $30,000. Now you’re in a car that is valued at about $10,000, paying $43,000 over four years, and that does not include repairs and insurance. Being poor is expensive because the long-term cost is higher.

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What Kiyosaki has done is invest his loan into something that is going to appreciate in value, not depreciate. This is where we separate those who are financially literate from those who are not. A loan from a bank should never be used to cover a liability or depreciating asset. It should only be used to make more money. If your car loan cannot pay for itself with an asset you already own, then it is a liability and considered bad debt. When you can actively recall your financial learning, it can help you prevent expensive decisions. Many costly financial mistakes happen because people forget what they already know in emotionally charged moments. Some of those moments may be trying to buy a new car quickly so you can post online and show the world, and family members you no longer speak to, that you’ve just been able to afford a shiny new toy. Or, you may understand that a market decline is normal but lose access to that understanding when your portfolio falls.

Building wealth is often described as a matter of learning more: more about investing, taxes, real estate, business, and markets. But there is another question worth asking. How much of what you have already learned can you actually retrieve when it matters?

Financial information becomes valuable when it moves beyond the article you read, the podcast you saved, or the video you watched. It becomes valuable when it is available to you at the moment a decision must be made. While skimming the Kiyosaki article and the comments people left, it was evident to me who had actually retained the knowledge versus who had read the book and retained nothing.

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A commenter who says, “So he doesn’t take his own advice,” versus another who says, “Wasn’t his whole model picking up debt for investment assets?...” is exactly why active recall is so important for wealth building. A book you read ten years ago about leveraging debt for financial investments should not escape your mind simply because enough time has passed. But those who did not read to comprehend will see a headline such as that one and criticize. So, the moral of the story is perhaps wealth is not built only by acquiring knowledge, but by remembering when and how to use it.

Image Credit: Photo by Photo credit: Mary Cybulski - © 2013 Paramount Pictures. All Rights Reserved.