Updated: Jun 23, 2021
Created by the McPhail family to play with WEquil School classmates.
Teaching kids about investing and debt can be hard...unless its while playing a game! This post outlines a few modifications to Monopoly to incorporate borrowing, lending, and interest rates. We think you will enjoy this version as much or more than the original and learn a lot more about credit markets along the way!
Monopoly is one of the world's most famous board games...but it's rules for "property trading" are more reflective of medieval Europe than a modern free market economy. For every four commercial real estate transactions, only 1 is purchased entirely with cash. Monopoly ignores the commercial debt market which, in the United States, surpassed $3.21 trillion in 2018.
Its a fun game, but arbitrary restrictions on when players can buy property (you have to land on it) and the inability to borrow makes it a poor tool for teaching kids about investing and how to handle debt responsibly. For every three American homeowners, two have a mortgage. Learning to manage debt responsibly is an important part of life for many.
This is the motivation behind, "Monopoly With Debt", which starts with the rules of Monopoly and applies seven new rules.
1) Borrowing ... Any game about real estate development needs leverage. You can borrow up to the mortgaged value of your property and half the cost of your houses/hotels. In the event of player default, property must be sold to the bank to cover debts before any property is transferred to another player.
Implications: The ability to borrow allow faster development of property and generally quicker games. Use of debt comes with risk but increases potential returns...just like in real life. Parents can point out the faster pace of development to kids accustomed to the old rules as a direct consequence of the debt market. While debt can be dangerous, it is also a catalyst for starting new businesses. People with cash don't have to be the same as the people who need cash.
2) Interest Rates ... Interest is paid at the beginning of the indebted players turn. The interest rate may very, but should be close to the number of players and should increase with indebtedness. Having more players makes investing in real estate more profitable. When interest rates are far below the number of players it skews the incentive toward too much borrowing. The following seems to work well for 4 players:
Debt of < $200, pay 2% interest
Debt of $200:300, pay 3% interest
Debt of $300:400, pay 4% interest
Debt of $400:500, pay 5% interest
Implications: High levels of debt can be hard to pay off because of the rising interest rate. Again, this parallels real life. Higher levels of debt hurt credit scores which in turn makes the bank demand a higher interest rate to compensate them for the higher risk. Kids are able to practice calculating percentages while subconsciously recognizing that debt can be dangerous if it gets out of control.
3) Free Market ... Property is immediately up for auction at the board listed price. All players have the option to bid for properties in increments of $5.
Implications: In the original Monopoly, players have to land on a property before it can be bought. Other players are only allowed to bid if the first players passes it up. This arbitrary restriction makes the game less about strategy and more about getting lucky. Free markets encourage players to evaluate all the properties on the board to determine which are more valuable (and some really are more valuable). Experienced players will know which properties board listed values (we call these "Book" values) are under/over priced. As a result, market prices converge to intrinsic value...just like in (you guessed it) real life.
The above three rules are the only ones necessary for including Debt markets. However, I also recommend the rules 4 - 7 below for realism and teaching moments.
4) Wealth Inequality ... Less experienced players can accept up to $1,000 more starting cash. This helps even the playing field without requiring parents to play dumb.
Implications: As kids get better you can encourage them to reduce their starting advantage. Siblings may point out that giving less experienced players extra cash is "unfair"...and they would be right, but that life.
5) Legal Fees ... Players cannot collect on property while in jail. This very roughly recognizes the increased ability/willingness of wealthy people to spend more on legal fees.
Implications: Allowing a free property market (see Rule 3) makes property development and game play much faster. As a result, going to jail becomes advantageous...which doesn't send a good message to kids.
6) Inter-player Borrowing ... Players are allowed to borrow from each other. They may do this for two reasons. First, they may get a cheaper rates than those offered by the bank. Second, they may be able to borrow beyond the collateral value of their property. In the event of default the lending player's debt is considered subordinate to any bank loans. This is only important if the lending player provided loans beyond the collateral available by the borrowing player.
Implications: This allows players to make money from lending. Lending beyond the amount of collateral available by the borrowing player is very risky as it can lead to losses on the notional of the loan. This adds credit risk to the game.
7) Receive $400 if you land directly on Go. This is a long time McPhail family tradition...and some traditions should never die.
We love this version of Monopoly! You can watch us play some at the link below...
We are hoping to build this version of Monopoly into the WEquil.School App so we can easily play with classmates. Let us know if you want to help!
Feedback is appreciated....let me know your experience!