Financial education is not a shopping list

Countless times during my consultations I've heard the phrase, "If only I had learned this 20 years ago,"It's a shame they don't teach this in high school." etc. regarding economic insights for which one consults. Because people usually come to me for advice on buying an apartment, but since they've already come, why not try to improve their financial lives much more broadly? By the way, most of the time, it's not necessary to lock the office door from the outside for this.

When people talk about Financial education Or family economics, they usually talk about a collection of Excel-type recommendations for expenses and income, a grocery shopping list, arriving at the supermarket full, a timer for the water heater, and so on. While all these recommendations have their place, in my opinion, it is much more important to teach economic thinking rather than the practice of small actions. Economic thinking is a topic worthy of a whole book (perhaps my second…), but in this article, I will try to touch on a small part of it. If you were not taught economics in high school, it does not mean that you cannot teach your children economic thinking even in elementary school.

A classic, yet powerful - Monopoly

The word monopoly represents a situation in economics of a single seller of a particular product or service (a portmanteau of the Greek words mono-single with polēin-to sell). This means a body powerful enough to control a certain market, whether through government regulations, commercial takeovers (e.g., by buying competitors), or, as is common, a combination of the two. The board game Monopoly was created by Lizzie Magie in the early twentieth century. The game was created as a protest against capitalism and had two versions: the Monopoly version, in which each player tries to acquire as many properties as possible, and a second version (Commumopoly?), in which everyone profits when a property is purchased. Magie wanted to show that the capitalist system was worse. The game was not very successful. About thirty years later, in 1934, at the height of the Great Depression, Charles Darrow became enthusiastic about the monopolistic version of the game, "invented" it with some modifications, and sold it to Parker Brothers. Darrow and the game company indeed ended their financial troubles.

Almost a hundred years later, Petah Tikva, Friday evening, an 11-year-old girl

Dad, can I play Monopoly with you?

Netflix/Monopoly, Facebook/Monopoly. Alright, Monopoly. And some insights emerged:

Return

It’s never too early to talk about sex and returns. I hear adults saying things like, “I’m buying in Bucharest right now; for 200,000 shekels, you can get a three-bedroom apartment.” Even in a monopoly, there are cheap streets and expensive streets. When my daughter argued that there was no point in buying a street in Eilat for 60 shekels because you barely get any rent from it, I told her, “But it’s also cheaper.” Let’s calculate the return: the ratio of income to price. Well, according to the Monopoly manufacturers, the return in Eilat is 31% and in Tel Aviv it’s 121%. Now we had to add a calculator to the game, and my daughter really enjoyed checking each time whether it was worth buying a property—one or the other.

Return on investment is the slightly more complex sibling of cost-benefit. It's clear to me that a certain car is better, but is its cost worth the added benefit? In many discussions, when the cost is difficult to calculate (e.g., with a mortgage), people neglect it. For example, someone told me last week that the "Price for the Resident" program is good and has helped many families purchase an apartment. Okay, the benefit is clear. What about the cost? According to estimates, the program cost 8-9 billion shekels. Now, it would be worthwhile to check if using those billions to give those families cash would have helped more or less. In other words, would a family that was helped by the program to purchase an apartment have been happier or less happy to receive a 300,000 shekel check with which they could purchase a second-hand or new apartment anywhere in the country? And so on.

Control advantage

In Monopoly, if you own all the streets in a certain city, you receive higher rent from that street and can also improve it with houses and hotels, which in turn will further increase the rent. This is also true in real life. Suppose you have one million shekels to invest. You could purchase (with a mortgage) an apartment in Tel Aviv or a modest building in Migdal HaEmek. Purchasing the building will provide you with an ownership premium that exceeds the rent from the apartments themselves. Consider how easy it is to have residents agree to urban renewal or simply an exterior paint job in a building where you own all the apartments. Owning all the apartments also allows for additional income sources besides rent, such as using the roof for electricity generation, etc.'

Negotiation

Stemming from the previous insight of control, it's beneficial for me to buy a street in every city to block the second player's control. On the other hand, she understands this too, and thus it will be bad for everyone. Very quickly the player asked, "Dad, can we sell streets to each other? At what price?" We don't have an instruction booklet, so I told her, "It's like in the country; anything the law doesn't forbid is permitted. You can sell at any price someone is willing to sell for and someone is willing to buy for." So discussions began about street prices (Do you think I'll sell to you for 300 if I bought it for 260? That's too small a profit). In the end, this was the most enjoyable part of the game.

Who won?

The original game is supposed to end when all players except one go bankrupt. This suited the pace of 1934, I assume. We didn't reach bankruptcy. We reached "it's bedtime now" (my bedtime, of course), but we got to a discussion about cash versus assets. My daughter claimed she won because she had the most cash and I was closest to bankruptcy because I had almost no cash. I tried to argue that cash should be counted along with assets, but that will probably be a discussion for next time.

Mortgage

I was happy to see that in our version, you can also take out a loan and mortgage a property. The loan must be repaid with an additional 10%, and while the property is mortgaged, you cannot collect rent from it. That’s really nice.

Educational insight – Distinguish between the principal and the secondary

While playing, I realized it would become an article. Then the need arose to produce a picture. I started staging a picture and thinking out loud about the article, etc. Before long, I saw that the game was becoming less fun. I reminded myself that with all due respect to getting a perfect picture (put your hand on the board, the calculator isn't visible well, etc.), it's more important to play with my daughter. Above is an imperfect picture of our game board. Pay attention.

Summary

Wonderful things happen if you say yes to your daughter. I think Monopoly is a wonderful game for financial education. Financial education, like pretty much all types of education, doesn't come from an adult standing at a board lecturing. Education comes first and foremost from personal example. So, you can set an example of "manners" and respect for every person, but how do you set an example of economic decision-making? A simulation like Monopoly is a very good method in my opinion. Monopoly lacks a very central component of our lives. In the game, you can only invest or not invest. Ostensibly, there is no reason not to buy everything you land on. In real life, there is an additional option – to buy clothes or meals at restaurants instead of investing in properties. The decision of present enjoyment versus future enjoyment years from now is the decision each of us makes every day (consciously or unconsciously), and it's not present in the game at all. Although, the game is a good foundation for discussion about it. I tried a way to present the issue of present fun versus greater future fun to my daughters in the past when they asked for pocket money. We agreed on 10 shekels a week, plus one shekel for every 10 shekels they had in their piggy bank.