Monopoly Makes You Think About Money

The following is an excerpt from Monopoly, Money, and You: How to Profit from the Game’s Secrets of Success. I recently posted about this book (see Investing Lessons from Monopoly) and since I love the game, I requested a review copy. The publisher sent me one and agreed to run this excerpt to give you all a feel for the book.

Most of the book talks about Monopoly strategy, decisions to make that put the odds in your favor, Monopoly trivia, and so forth, so it's not as much of a personal finance book as it's a book about Monopoly that has a finance angle. Anyway, I really enjoyed it (after playing the game for years I learned a ton) and my 14-year-old daughter has it now -- devouring all the tips and tricks. I'm sure she'll use them to kill me at the game. :)

It goes without saying that it takes commitment if you want to become good at anything. That means a lot of practice, trial and error...and education. Yes, it takes all three; there are no shortcuts, especially when money is involved. I’ve seen many a brilliant academic mind, hired at a high level into a firm, really muck up its business. I’ve seen laborers build a good life by virtue of their own hands, but never figure out how much more they could make if they trained others to do the hard work for them. I’ve seen doctors and lawyers build flourishing practices, earn upwards of $750,000 a year, and fall deeper and deeper into debt.

Why do these mistakes occur? I think it’s because most of us receive very little—or no—practical training in financial management. (It’s been said that there is no difference between theory and practice...until practice.) We try to learn as we go and often endure the consequences of mistakes: budgets out of whack, an inability to see the merits of doing without now in order to reap a reward later, not understanding the difference between saving and investing. Worse yet, we become vulnerable, prone to listen to silver-tongued individuals intent on separating us from our money through the lure of a “sure thing.” By the time we recover from basic avoidable mistakes, we’re in the hole and need to devote more of our financial resources just to get back to breaking even. I’ve been there.

Imagine being challenged to operate a giant construction crane, having only read the owner’s manual before being thrust into the operator’s seat. (Okay, maybe your uncle, a retired forklift operator, gave you a few vague pointers.) Suddenly, the controls are in your hands and you’re on your own. Do you think your first lift would go smoothly? Or are you more likely to drop the load?

That’s what handling money is like for many of us after we come out of school, start earning a respectable salary, and find that the controls are now in our grip. Sure, we might instinctively apply (or avoid) our parents’ financial habits. More instinctively, we want everything today (solution: credit cards). We fall into debt. Time marches on, and hopefully we recover from our early mistakes (pay off those cards) and gain some wisdom to protect our money. We come upon good advice along the way and apply it if we wise up. If we don’t, we remain stuck in a rut with no savings for the bulk of our working lives and must place our trust in government largesse, especially after we’re retired. But if you read the news, you know a crisis is coming because the weight of promised government entitlements is unbearable. (It already dwarfs the alarmingly large national debt.)

More than ever, worry about money dominates our lives, and the message is clear: you need to acquire it through your own hard work, save as much as you can, and constantly nurture and grow a nest egg to “win the game.” What about that good financial advice I mentioned? The problem for most us (me included when I was starting out) is that we can’t feel this advice. It’s as abstract and academic as Avogadro’s number. (If you had high school chemistry, you might remember this term, but who remembers the number of molecules it signifies?) In order to make good financial decisions, you need the benefit of experience to drill home the basic lessons. This comes at a price—literally. Fortunately, there is a playing field’s worth of experience at your disposal that enables you to feel the impact of both good and bad financial decisions, joyously, without penalty.

Yes, it’s the classic version of Monopoly. Monopoly puts you through a financial wringer without real-world loss. Once you get the hang of how to win it, you’ll feel the game’s secrets of success and see how they apply to real life—sometimes verbatim, always in principle.

Since Monopoly is a money game, it is denominated. Filled with numbers. Every component of this amazing game is built of bricks related by addition, subtraction, and sometimes multiplication and division. These simple operations can, if you’re a true enthusiast, lead to a study of the kind of probabilities, tables of statistics, and future value analysis that would make any Wall Street financial guru salivate. In fact, this parallel demonstrates the great value of Monopoly in honing your real-world investment skills. You need to do numerical analysis to understand the impact of key financial decisions in your personal life or business. It can be fun to do this. Many successful people I know view money like points in a game. The more points earned, the more they feel they’re succeeding. Money is a scorecard of sorts. Increasingly, it’s becoming a virtual scorecard because we actually don’t see or touch our money. It exists in accounts, represented by digits (points, as my friend would say). We access it on our mobile devices, making it easier than ever to count our money and know our “score.”

You may not have a degree in finance or have ever thought of becoming an investment banker on Wall Street, but that doesn’t mean you don’t have the smarts to make a good investment. By playing Monopoly, you pick up the basics the pros paid a handsome sum to learn in advanced schools: rate of return, payoff odds, likelihood of a big return, cash management, diversification (not to mention the art of negotiation).

These skills apply equally well to your everyday financial decisions. Here’s a list that demonstrates five such disciplines:

• Topic: Budget
• Monopoly: Maintain a balance between cash, properties, and buildings.
• Life: Compile a monthly budget. Classify items by “essential,” “savings,” and “desired.” Meet your savings goal before you spend on “desires.”

• Topic: Track spending
• Monopoly: Learn to visualize or record your balance sheet to know where you stand.
• Life: Stick to it; monitor your investments and their growth.

• Topic: Reduce debt
• Monopoly: Don’t deplete your credit (that is, your ability to mortgage and sell assets if needed).
• Life: Pay off debt, especially highinterest debt. Try to become debt free.

• Topic: Maintain a cash reserve
• Monopoly: Don’t go bankrupt by having no cash, or assets to convert into cash.
• Life: Protect against loss; carry insurance. Maintain a rainy-day savings fund.

• Topic: Deal effectively
• Money: Trade to get the most income potential.
• Life: Bargain wisely; get what you need without overpaying.

Here’s the big idea. To make money, you have to steadily think about and apply yourself to making money. Amassing play money to win at Monopoly requires a high level of attention (one dumb move might bankrupt you). By developing a winning discipline in the game, you’ll be inspired to diligently protect and grow your real cash. Devotion to your money should be akin to regard for a valued family member, for whom you want only the best, an absence of threat, and success beyond measure. You wouldn’t treat such a loved one with neglect or casual disregard. Hold money in the same light. Think about this.

Monopoly immerses you in financial decision making. All those colorful bills lie at the core of the game. Nearly everything is related to them: the value of the spaces on the board, the cost of buildings, the messages on the cards, the investments and rentals on the deeds. The bills provide the game with its rhythm; it ebbs and flows with each cash exchange. Just as important, the amount of cash you possess affects how others perceive you at any moment (with respect or awe, hopefully not with apathy).

The game’s lessons are acute because you can’t win by playing it safe (translation: by holding on to all your pretty bills). You must invest a good deal of them, rather quickly, in order to win, thereby placing them at risk. The danger you subject your money to is palpable. This sense of vulnerability means that money controls you during the game. You may feel like its master, but you are its servant. (That’s often the role we let real money maneuver us into.)

In Monopoly, money creates and destroys. At times it brings players together, while they are making deals, but more often than not it drives them apart—because only one player can win the game, the one who gains all the money. Games are like that. There can be but one victor.

Fortunately, real life stresses cooperative effort to get rich (win-win). You won’t need to bankrupt your neighbor to come out ahead. (But if you try too hard to emulate his glitter, he could bankrupt you!) The game’s need of a clean, decisive outcome results in well-structured rules that permit, condone, and assure that one player (hopefully you) will win everything. For this reason, its lessons are vivid and clear. This is why the
principles of winning Monopoly aren’t difficult to figure out, apply, or learn from. Alas, the “rules” in life are constantly evolving, and their lessons are more difficult to discern in a timely manner. But believe me, you gain an edge when you accept that there are rules and you begin to figure them out.

Handling money in the Monopoly game triggers a broad range of human emotions. You might laugh, shout for joy, grit your teeth—or cry—because of its changing impact on your fortune. This range of drama is a key reason why players come back to play time and again. We like the rollercoaster ride. And that’s why we feel its lessons. We relish joy on the way up and a heightened sense of fear on the way down. Recovery brings relief, but only temporarily. The money game in real life is much the same, when you think about it.

Comments

[getagrip]

While I can appreciate the analogy, I hated Monopoly as a kid and as a parent. It was a long, long game for kids where if you started with four or five, two or three would be out within the hour and the remaining two would be at it for at least another hour. Thus you've got kids who now either have to sit on the sidelines for a longer time than they were playing (fat chance) or go find other things to do (much more likely), which defeats the purpose of everyone playing a game and enjoying it together. It didn't get a lot of repeat play because the kids out early didn't want to do it again, and since you're talking about half the players that usually nixed it.

[Lurker Carl]

Monopoly's secret to success is buy, buy, buy everything you can and build on your monopolies and keep a "Get out of Jail Free" card handy. Then financially destroy anyone landing on your outrageously expensive properties. Hardly what you want to teach your children! But it is only a game, kids won't pull life lessons from Candyland or Mousetrap or Pinochle either.

[Mike Hunt]

The only thing that is missing in the game of monopoly is the ravaging effects of inflation.

-Mike

[Apex]

@Mike Hunt,

But if you have hard assets and especially if you have a lot of debt on those assets then inflation is nothing to fear. In fact its the biggest friend you have.

There are many rich farmers who never made any too much money while they were farmer but they bought on their land with borrowed money and while they may have made only moderate progress on paying down the debt, 40 years later it is worth millions many times over, simply because inflation ate away all the debt and now they are rich.

For anyone concerned about inflation, you have to have assets that inflate with it. Inflation is really only a problem for people holding cash or cash based savings (CDs and long term bonds). If you hold hard assets or even stocks, your asset values will eventually rise with inflation even if they lag for a while.

[Apex]

And speaking of farmers.

I know I sound like a broken record here but to getagrip's comment about people being eliminated, get The Farming Game instead. The winner is not determined by elimination but by who amasses the most wealth. You don't buy everything with cash, you borrow money to invest in your business. Its a better game, better lessons, better approximation of reality, and in my opinion, way more fun.

[BH]

It's true - the only way you can win in monopoly is to buy income producing assets, like real estate. And then build apartments on it. Start small and build up. Farmers die rich but generally live a hard life, and often their children swindle away the inheritance, having no appreciation of what their parents sacrificed. The simple message from monopoly, I think, is buy income producing assets and don't run out of cash. It works in the real world, too.

[Old Limey]

@Mike
What's wrong with these transactions.

Buy new home in Silicon Valley for $26,950 in 1963.
Sell home for $90,000 in 1977

Buy new Vacation home at Lake Tahoe for $16,000 in 1968
Sell home for $90,000 in 1979

Buy 5 year old home in Silicon Valley for $107,000 in 1977
Value as of May 2013 $1,250,000

Buy beachfront vacation and rental condo in 1979 for $125,000
Value as of May 2013 $550,000

Of course, timing matters but the losers in my opinion are perpetual renters.

Other benefits of ownership are the tax deductions on homes you live in and the depreciation on rental properties. Admittedly the capital gains are locked up in the properties and have not actually benefited us but the properties will benefit our heirs when they inherit them with a brand new basis. Meanwhile we have no loans and no monthly payments to make which gives you a nice feeling of security as an elderly retiree.

[Matt]

I think it would be funny to add real life scenerios like deadbeat tenants, bed bug infestation,housing inspection failing, property tax increases,being sued in a slip and fall, IRS audit on you depreciation of assets and alike.

But then again who would want to play a game closer to real life.

That is no fun.

[Nick @ ayoungpro.com]

In my high school economics class we used to play Monopoly every Friday. I totally think you can learn a lot from Monopoly!

[Apex]

@Matt,

Monopoly has that. It's called the Community Chest and Chance cards. It's entirely random rather than something you can do a good or poor job of managing but it has a flavor of it.

[BH]

Real life challenges come up but you work through them. As long as you buy income producing assets and hold on to enough cash, and you have the ability to work through life's challenges, you can do well.

[getagrip]

With respect to farmers getting loads selling their farms, that all depends on the tried and true real estate mantra, location, location, location. In what I've seen the farmers who clean up are the ones where a developer comes in and buys the farm out in anticipation of rezoning for either commercial or residential development, not someone coming in to continue farming.

[Apex]

@getagrip.

I grew up on a farm. I have nearly a dozen cousins that still farm. I married into a family that has farmers. My brother married into a family that has farmers. I know how farming works.

location is irrelevant to real estate values in farming. What is relevant is quality of land with respect to how productive it is for raising crops. Land in the middle of no where in illinois is worth a ton of money. Land in the middle of no where in Montana, not so much.

What you are talking about is someone who has a small little plot of land next to an area that is being developed and turns 40 acres into 4 million. That is rare and is not what is required to farm your whole life and walk away rich.

40 acres is not a farm, its barely a hobby farm. Farms in 21st century have multiple thousands of acres of land being farmed. Most farmers do not have enough money to purchase all the land they need to farm to sustain themselves although some do. But most of them are able to purchase at least a few hundred acres of it My dad is mostly retired from farming. He only managed to purchase 300 acres of land but he did it mostly 45 years ago and some of it 35 years ago. He bought most of it for $200 / acre and the last bit at $1000 per acre.

We were never rich. We didn't have fancy things. We almost always bought used cars and used farm equipment until about the time I was in high school before we had enough money to buy a few things new.

That 300 acres is now worth about $7000-$8000 per acre. That makes his net worth on just the land alone pushing $2.5 million. My brother's father-in law had purchased 600 acres. He borrowed a quarter million over the years to purchase it with very little down. At his death he owed over $400,000 on it, meaning he never paid off a dime and added $150,000 in debt to it. He never made much of anything while he farmed. He had his land custom farmed the last decade and made better doing that than he ever did while he farmed it personally.

He went in debt an extra $150,000 on that land which shows how he never made much progress during his farming years from the operation. But that land is worth about $5000-$6000 per acre today giving a net worth on the land after debt of about $3 million. I know because it had to be appraised for estate tax purposes.

Both my dad's land and my brother's father-in-laws land have zero chance of being developed residential in the next century. They are no where near any cities.

Any farmer who owns any reasonable amount of land for his farming operation over the last 40 years has gotten rich just on the value of the land alone and it has nothing to do with being near a large residential development.