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Kids and Financial Games
I started a new game with my kids the other day. I called it the Bank Game.
I announced to them that I am the Bank; and I got their attention when I explained they could buy a toy using leverage.
After explaining the definition and concept of leverage I had to explain the business model through a process of borrowing and paying back.
I had to also explain 5 concepts about banking and money:
1) Depositing money into a savings account
2) Creating a Credit score
3) Borrowing certain amounts
4) Acquiring assets
5) Paying the debt off
Assets can be a good thing or a bad thing because everyone has to repay the debt with interest by:
a) Working for the money (with a job or a career of some sort) pay debt by economizing (so if you buy toys you enjoy them but you have to work to pay for them or they will take them from you
b) Working the money (with assets you flip) pay the debt by working the money harder (Buy a toy at one price and resell it at a higher price - pay down debt then pay it off and then keep some toys at the end
c) The money working for you (with assets you keep) paying the debt by budgeting and holding on to the assets that bring you income to pay down and eventually pay off the debt - Buy a toy at a time and rent it to friends - they pay you to use it like a rental fee and you pay down the debt then pay it off.
The game lasted only four rounds:
Round One:
I was proud of my kids for depositing money, creating a credit score, and borrowing (using leverage) to buy a toy each.
Sadly the game did not go as well as I anticipated. When it came time to pay the debt, I as the Banker, encountered some difficulties:
1) They did not want to have a job to pay for the debt because they wanted to play with their toys
2) They did not want to resell the toy at a higher price because they fell in love with their toys and could not part with them
3) They refused to rent the toys to anyone because they did not want anyone to damage their toys
As the bank, I came into their room and foreclosed on the loans and repossessed the toys
It was not a pleasant experience, but I explained that the law was on my side because of the contract they signed.
I am waiting for them to recover this week after this traumatizing experience and will soon be teaching them the concept of public auction and distressed sales that I as a bank will have to do to recover some of the money I loaned them in good faith
It's not easy to be a Banker. Even your own kid's revolt and get upset when stuff is taken from them.
Oh well, it is my duty as a parent to introduce the concept of managing debt and being responsible so when they grow up, they can take charge and understand life is a game of knowledge, responsibility, and control.
Raising kids is rewarding and exciting although it has some challenging moments and today I caved in and handed them the toys back.
I told them that it was the concept of loan forgiveness or gifting.
They smiled and seemed happy although am not sure how they will react when I explain to them the concept of taxation on gifts and grants enforced by the IRS!
Aaaah It’s not easy being a parent and explaining all the financial rules, but I love it.
Sincerely,
Cherif Medawar
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