When I was a kid, I never liked the game Monopoly. I found it slow and uninteresting. But now, as a parent, I see its value. I’ve tried a lot of things to teach my children about money, but nothing comes close to Monopoly in its ability to convey lessons in personal finance.
Sure, it helps kids practice the basics like addition and subtraction—but there’s a lot more to it. If you’ll be spending time with children over the holidays, I recommend giving Monopoly a try. Here are the fundamental lessons I think you can teach them:
Yield: Every property on the Monopoly board is different. Some cost more than others, and each pays a different rental rate. As a result, some are much better deals than others. Kentucky Avenue, for example, costs $220 and its rent is $18 resulting in a yield of about 8%. Meanwhile, Boardwalk is much more expensive, at $400, but its rent is also higher, at $50, putting its yield at 12.5%. This makes Boardwalk a much better buy, even though it’s so much more expensive. Little kids tend to focus only on the prices of properties, but this is an opportunity to teach them about rates of return. And this will help them start to see the difference between a purchase and an investment.
Total return: Income yield is only one way in which a property can be valuable. A second key lesson is that an asset may be worth more to someone else than it is to you. In fact, the often overlooked reason the game is called Monopoly is because players can double the rents they earn when they own all of the properties in a set. The result: If another player has all but one of the properties in a set, and you hold the remaining one, he or she might pay an above-market rate to buy it from you. That’s the second lesson: Most assets carry two types of return potential: income and appreciation. Whenever you’re evaluating a purchase, you want to consider both.
Luck: Chance cards illustrate the role of luck—both good and bad—in everyone’s financial life. Sometimes good fortune drops out of the sky (“Advance to Go, Collect $200”), and sometimes bad luck comes along (“Speeding Fine, Pay $15”). The lesson: Life isn’t always predictable, and it isn’t always fair—an especially good lesson for little kids. But there are ways to protect yourself from bad luck. Among them: maintaining more cash than you might think you’ll ever need.
Liquidity: If a player ends up in financial distress, properties can be mortgaged to raise cash, or they can be sold to another player. But you might end up selling at a fire sale price. There’s more than one lesson here about leverage, liquidity and financial stability.
Risk preference: Monopoly participants seem to fall into three groups, with some more or less risk-averse than others. Some buy properties very rarely so as to conserve cash. Others are willing to open their wallets but only for properties they think make sense. Meanwhile, those in the third group are willing to spend top dollar buying up the most valuable properties. And they’ll spend even more to populate them with houses and hotels. I’m sure a psychologist would have a lot to say about why this is the case. But for kids, the basic lesson is to see that people are different in this way, and to see how others’ approaches work out. It’s important also for kids to see the role of luck, which can cause a good strategy to fail or an unwise strategy to succeed.
A further lesson on risk: In Monopoly, as in real life, the amount of risk you choose to take is a choice—but only to an extent. Those who take too little risk can see their savings dwindle. And those who take too much risk can, of course, fall into bankruptcy. Monopoly does a good job illustrating how risk is a choice, but only within certain boundaries.
While Monopoly mirrors real life in all those ways, there are two respects in which it’s unrealistic:
Starting point: When you set up a Monopoly game, each player receives the same amount of cash. That makes sense for a kids’ game. But of course, that’s not how the world really works. Monopoly would be a different game if each player started with a different amount of cash. That’s a different kind of lesson, but probably worth pointing out to children.
Work: Monopoly is all about buying and selling investments. There’s no concept of work. For most people, though, you can’t start investing until you’ve spent some time working and saving. That probably would have been difficult to build into the game, but it is a key shortcoming. By ignoring the value of work, it leaves players with the idea that the only way to build wealth is by investing.
A final thought: When I was a kid, growing up in Massachusetts, we once took a field trip to Plymouth Plantation. The lesson I learned: Landing in New England in November wasn’t the wisest move. About half the Pilgrims didn’t make it through that first winter. But if it weren’t for the help of Native Americans, who taught them key survival skills, it would have been much worse. That’s the final lesson I try to convey to my children when playing Monopoly: In our financial lives, most people will experience a mix of successes and challenges—for a variety of reasons, including plain old bad luck. For that reason, we shouldn’t judge ourselves—or others—too harshly.