Investing Lessons from Monopoly

US News has a piece detailing investing lessons from the game Monopoly. They interviewed the author of a new book who has "30 years judging the United States and World Monopoly Championships" (who knew there were such things?) Anyway, he offers some investing advice based on what he's learned from the game. Some highlights:

I think Monopoly is the first and perhaps most significant training ground kids get in learning the importance of the art of negotiation and how to do it. It's the safest way imaginable to learn the impact of financial dealings, because you don't lose real money if you make a mistake. Along the way, you pick up how to be an appealing trading partner—meaning you don't rub people the wrong way when brokering a deal—and at the same time be able to get a little more out of the deal than your opponent does.

Monopoly is reflective of the impact of chance in real life. The game is more significant in teaching life lessons than a game like chess, where there is virtually no luck. No matter how much control we think we have over each day, or each fiscal year, in reality we don't have control over all the unforeseen events that will happen.
 
Timing is seldom under your control. For example, there may be a time you want to buy a new home in six months, but lo and behold, the home becomes available today and you're not in the right financial position to buy it. You have to know when the window of opportunity is closing. In Monopoly, real estate is the same way: You land at a property you may not want to buy yet, but you realize you have to put it up for auction, which may be a risk you're not willing to take.

Monopoly requires you to have diversification. You want to buy a blend of properties; don't put all your eggs in one basket. One lesson is you're going to need one color group you need to develop, but that probably is not enough to win the game. You're in good shape if you have utilities and railroads to earn cash to fund your Monopoly.

It teaches you debt can control your life. If you owe $10,000 in credit card debt, you not only owe the principal but you're paying a stiff fee for interest. Suddenly, you're not working for money—money controls you. Now, in Monopoly, you have a credit reserve in a mortgage value. Let's say you have 10 properties, so you have 10 opportunities to lean on the bank for setbacks or if you want to mortgage properties to bankroll more investments. But when you mortgage a property, you lose its income. So now you owe the bank a lot of money and you have no money coming in. The same can happen in the real world.

It's a fascinating piece and (probably) an interesting book. I have requested a copy from the publisher and perhaps I'll post more on it in months to come.

Some of you "old timers" may recall when I published Money Lessons from Monopoly back in 2009. It has a broader but similar perspective to what's written above.

We play a decent amount of Monopoly. It runs in fits and spurts -- a ton of games over the course of a month and then none for several months. My daughter really likes the game and plays it on her iPad quite often.

I grew up playing the game. My dad and I would start a Monopoly marathon around 9 pm on a Friday or Saturday night and end up playing until 3 am or 4 am in the morning. He won more than I did -- but just because he is the LUCKIEST man alive when it comes to rolling the dice. He'd say, "I need a three" and he'd get it. Then he'd say, "I need a nine" and he'd get it. It was very frustrating for me. It's one reason I took up chess. :)

Do any of you play Monopoly? Do you think it's taught you anything about managing money?

Comments

[My Financial Independence Journey]

I played monopoly as a kid and I think there are some basic financial lessons in there. Fundamentally there are aspects of resource management and negotiation in the game, which can be applied to many personal finance situations.

[John S @ Frugal Rules]

We played it all the time when I was growing up and hope to do so with our kids as they get older. I think games like this can be a good way for them to get some hands on, albeit in a game, experience learning basic things like watching what you buy and diversification.

[Jonathan]

Monopoly was my favorite game growing up, but we had our own set of rules. I don't remember ever needing to negotiate in Monopoly...Just roll, move, buy, pay, and collect. And I was the banker, which was fun.

Incidentally, in real life you can "mortgage" your properties (i.e., cash-out refinance or HELOC) without foregoing rent - it's called leverage.

[Apex]

There are some parallels but in general I don't think Monopoly provides a very good real world comparison.

First of all you purchase everything with cash. In the business world that almost never happens. Only when you are in trouble do you go to mortgage a property (which isn't how mortgages work in business). Once you mortgage a property you lose it's income which is also not what really happens, either.

The subtle message is that cash is good, debt is bad. But how do you actually get cash? Well you start with a pile given to you, then you get some given to you each cycle around the board and you can land on free parking and win a lottery basically. That's how you get cash until you own enough properties to control an entire color and can start putting something on it that actually makes real money which is also odd because that has no parallel in business either. Each asset makes money on its own merits, you don't have to control an entire city block to make money.

It has some cute aspects but its a little too fanciful for my notions. I don't think it does a very good job of representing real life or business.

There is a game that is far better at representing a very real life business situation but it has no market penetration because it's for a niche. It's called "The Farming Game" and its probably pretty clear what it is about.

You start out with a very small amount of money and then you borrow money to purchase land, livestock and grow crops. You have a credit limit and need to make money on your investments to pay off the bank and interest and to gain money to expand your business. You don't make money by busting other players, you simply make money on your business and try to expand it to the point where you are more profitable than the other players. Some investments are cheaper than others but less lucrative as well. There is still chance as you roll dice to see how well your investments paid off and if you over-expanded too quickly in the wrong things you could bust out.

This is what business is really like. I grew up playing monopoly a few times but once we got our hands on this game we never went back to monopoly. Growing up on a farm probably had an impact on that as well, but I found the game far more fun and more instructional on business. The parallels to what I now do in real estate are pretty good. Monopoly, even though it is real estate based, doesn't really have many good parallels.

http://www.amazon.com/Weekend-Farmer-WF100-Farming-Game/dp/B00004UDWU

[jim]

Monopoly taught me that you should buy every single piece of real estate you possibly can and that luck determines who wins. I don't believe those are great lessons for real life.

[Nick @ AYoungPro.com]

In my high school economics class we played Monopoly every Friday. I think you can learn some basic financial lessons from Monopoly for sure!

[Old Limey]

Monopoly is a very old board game, almost my age which is 78 now. Our family used to play it when I was a young lad. The British version had famous London streets and railway stations etc.

In the modern context it has very little to teach you about buying and owning real estate since the game is not very detailed and one's fortunes depend primarily upon the roll of the dice.

[r_meister]

I second the Farming Game - great fun to play, more similar to "real life" (although still oversimplified and random enough to make it fun of course).

[WRC]

I learned to count change by playing Monopoly. I think that's almost a lost art today!

[Matthew]

I love Monopoly. I think it’s an awfully fun game with an amazingly fun company. This game has taught me how luck plays an important role and determines who wins. LOL!!!