Five economics lessons you learn from playing Monopoly
Monopoly is a game everyone knows. It is over a hundred years old. The game is the raison d'être of real estate trading. We used to play it in the company of friends and for fun, to feel like a powerful businessman who owns giant corporations. But let's think deeper. If you've played Monopoly long enough, you'll realize that the game can teach you a lot of lessons about investment and finance that work in the real world as well.
Let's take a look at five lessons that will not only help you beat your friends at the game and have a great time, but also help you expand your understanding of economic processes and the most basic financial principles.
1. Always leave a financial safety cushion
This lesson is one of the most basic ones we can learn in monopoly and we have a responsibility not to forget it in real life. You can only win a monopoly if you are the last player left, and you have succeeded in making your rivals bankrupt. If you just hop around the map and buy up all the real estate you have enough money for, then when the round is over and it's time to pay for the upkeep of your business, you can run out of money very quickly. If you run out of money, you will have to sell what you already own at a huge discount to pay off your obligations. With this kind of mindless spending of money, you will very quickly lose any opportunity to get back into the game.
The same principle applies in real life. For example, we can remember when the real estate market in the United States collapsed. After that, one of the most serious banking crises began, and those who had absolutely no money found themselves in serious trouble. People sold their things, their houses, their cars at very deep discounts in order to pay off their loans.
Thus, even many investors, instead of completely losing their cash, gave away securities at very minimal prices, and those people who had the most money in 2008 were able to multiply it even more, buying a considerable amount of stocks, houses and other things. As a result, they ended up with the most money.
You don't have to lose your cool and jump at every opportunity to win a monopoly. You must have a plan for the game. Chances are, you won't win by buying all the properties you get up for. That way you'll just run out of money very quickly and you'll be out of the game. Think about exactly what you need and when you need to skip a move.
Successful investors don't use hope, they use a clear and calibrated plan. Your approach should be patient and your strategy should be calculated years in advance, then you will be less dependent on luck and the market, because you will know where everything will come to.
In the late 90's many people laughed at Warren Buffett for not getting involved in all the hype around internet companies and not investing in them then. Back then, people were making a lot of money when this industry was just starting to grow. But in the end, for many, the result was bad. People chased internet company stocks for months, but when they ran out of money, the offers immediately collapsed, and those investors who didn't use discipline and patience were wiped out. Warren Buffett, on the other hand, exercised patience for several years by not getting involved in too much risky and adventurous business.
3. Money Flow
Monopoly is a simple enough game to understand. You are the last player with the money and you win. But what makes all the cash flow happen? Because of the rent from your property or the property of your opponents.
The value of your assets will always increase from how much money they generate for you. If a company has been showing a steady income for decades and continues to grow, it's a great investment for the future if you don't want to gamble. Coca-Cola, IBM, Apple... the list goes on and on, but you get the point.
4. The most expensive asset is not necessarily the best asset
Most monopoly players try to get the asset with the highest cash flow, but completely forget that such an asset will also be expensive to maintain and problematic to buy. Also, don't forget that you're not the only one who will be after such an asset, which means more competition, and you have to figure out if it's worth it. Try to balance the money you spend and the possible profits, and then you'll come up with the ideal option for you.
Remember, you win not by how much expensive stock you own, but by how much money you have at the end of the game. Try to play the long term, consider different options, and don't focus on just one thing. The obsession with owning one company can very seriously bankrupt your wallet.
It's very hard to win a monopoly when you just own one type of property. Likewise, it's almost impossible to win if you buy a little bit of everything and can't focus and bring any one business to the top level. Of course, luck plays an important role in monopoly, but more often than not, the one whose properties are spread out over the map will win, because he will have a better chance of getting money from you.
The same approach works in real life. If you try to work with a single stock, you fence yourself off from possible potentially profitable stocks, and you expose yourself to economic collapse if things don't suddenly go according to plan. Don't try to box yourself in. Choose different ways to achieve financial success.
Of course, the game of Monopoly cannot be construed as an economic education in investing or finance. It has its flaws and moments of simplicity. However, it can provide beginners with some insight into the processes that go on in this business.
Was this article helpful?4 Posted by: 👨 Ram Gopal Gulati