You’ve probably played Monopoly®, either as a kid or with your children. It’s been a popular board game for more than 110 years. Elizabeth Maggie is credited for having created the game in 1904. However, it was probably in existence as early as 1902.
A little known fact about Monopoly
One of the interesting facts about Monopoly is that every street on its board actually exists (or did exist) in Atlantic City, New Jersey. We say “or did exist” because a few of them have been swallowed up by hotel casinos. One enterprising person created a video consisting of photographs of all the remaining Monopoly streets in Atlantic City.
Learn personal finance from a board game?
You’ve probably never thought of it this way but you can actually learn a lot about personal finances from this game.
First, there is a banker/auctioneer. He or she handles the money and doles it out just as do bankers in real life. The banker handles auctions, again just as a bank would in real life. The banker holds title deeds, pays out salaries and bonuses, sells houses and hotels to the players and when required loans money on mortgages. He or she collects all fines, taxes, loans and interest. In other words, the banker is very powerful just as bankers are in real life.
It’s the same objective
Second, the object of the game is the same as what most people want in life, which is to become wealthy. And the way you do it is by making smart investments. What Monopoly teaches is that it’s important to buy the right properties and in everyday life it’s important to make good investments. Another lesson to be learned from Monopoly is that it’s best to diversify or to buy properties that have different values. You shouldn’t buy only the most expensive Monopoly properties such as Boardwalk or Park Place as this would limit your ability to collect rents and ultimately to buy houses and hotels. In real life, you shouldn’t invest only in high-yield bonds or a few mutual funds as this could limit your ability to have a variety of different investments to protect yourself from economic down turns.
Luck plays a part in both
While it may not be good to admit this, luck plays a part in Monopoly and in out lives. The dice determine where your piece lands on the board, which governs the properties you can buy. And luck plays a certain part in our lives. People who are born to wealthy parents stand a better chance of being successful than people who are born in poverty. There is even a certain amount of luck involved in when you were born. People who came of age in what’s called the “post war economy” of 1945-1970 found it much easier to get jobs and start their careers because our economy was expanding and there were fewer people competing for jobs.
“Smarts” are important
In Monopoly it’s important to play “smart.” The game’s primary objective is to get monopolies or to own all the properties in a set (all properties of the same color). When you play Monopoly you have a finite amount of money. You have to make good decisions as to which properties to buy and which to pass on. For example, if you were to land on an inexpensive property such as St. Charles Place you need to decide whether it would be a good investment or you should wait and hope to land on a better one like Marvin Gardens or New York. In real life, you’re often faced with the same type of decisions. For example, if you decide to invest in real estate, should you buy a cheap property and hope to do a “fix and flip” or wait until you can afford something better where you could get a higher return on your investment.
Spend your money wisely
In Monopoly if you go on a buying spree early in the game, you may quickly learn that this could be a big problem later on if you land on a property you need for a Monopoly but don’t have the money to buy it. The lesson to be learned here is to keep a cash reserve to tide you over in the event of an emergency or if you suddenly discover a great investment opportunity.
Random elements
What happens in Monopoly if you land on Community Chest or Chance? It will be a random thing that can be either something good or something bad – just like life is full of random events. If it’s bad, it’s probably going to cost you money. The lesson this teaches is that again, it’s important to have an emergency fund in the event something bad happens to you. In Monopoly if you run out of money you’re out of the game. Running out of money in real life won’t necessarily kick you out of the “game of life,” but could force you into bankruptcy, which would have very bad financial consequences.
Spending your salary
In Monopoly every time you are fortunate enough to pass Go, you earn a salary of $200. You then get to decide how you will spend the money. You could use it to buy a house or you might decide to save it. In Monopoly you will soon learn it’s not good to squander your salary on cheap properties or by putting houses on properties that don’t generate much rent. After you’ve played the game several times, you will know how to better manage your money. The same can be true in real life as it nay take you a few years and some hard knocks to learn to be a good money manager
That dreaded income tax
If you land on the Monopoly square labeled Income Tax, you can either estimate your tax at $200 or pay 10% of your total worth. And you must make that choice before you add up your total worth. Of course, today the idea of paying $200 in income taxes is pretty laughable. But if you don’t have enough cash to pay the $200 or 10% of your total worth, you may be forced out of the game. The lesson here is to remember that when April rolls around you may be required to pay income taxes and if you don’t have the cash available, you could end up in big trouble. In fact, the IRS might put lien on your house or garnish your salary.
Half their value
If you get in dire straits in Monopoly, you can sell your houses and hotels back to the banker but at just 50% of their value. You can also mortgage properties but again for far less than what you paid for them. The lesson to be learned here is to never sell your home or an investment property under emergency conditions, as you’re likely to get much less than it’s worth.
The perils of bankruptcy
If you reach a point where you cannot pay the bank or another player what you owe, you are bankrupt. In the event you owe another player, you must turn over all your properties of value to that person and leave the game. If you own hotels or houses, you must give them to the bank. In return for this you will get 50% of their value in cash that you must turn over to that other player. In the event that you owe the bank, you must turn over all of your assets to the banker who will immediately sell everything by auction except for buildings. As you can see, if you become bankrupt in Monopoly, you will be finished. While it’s not quite as bad in real life, a bankruptcy will have some very serious consequences on your finances. For example, it will stay in your credit reports for at least seven years. It will also stay in your public record for the rest of your life. In a worst-case scenario you could miss out on a great job 10 years from now when your prospective employer see that you had a bankruptcy and decides to not hire you for this reason. In addition, a bankruptcy will make it very difficult for you to get new credit for two to three years and when you are able to get credit it will cost you money because it will have a very high interest rate.
