A Marriage of Board Games and Financial Independence

Board. Games.

Love them or hate them, they’re an incredibly viable option for entertainment during quarantine. You can only watch Netflix, play video games, or read for so long before you start to go crazy. Board games provide a great alternative and can strengthen the bond between loved ones. Furthermore, they can actually teach you a thing or two about money management if you play the right ones.

You might be skeptical: when has a board game ever taught you an Earth-shattering life lesson?

You have to play the right ones, but I promise lessons can be learned from games. As a history nerd and map enthusiast, one of my favorite games to play is Risk. My biggest takeaway from Risk is that board games ruin friendships and family…only half kidding, but in all honesty it taught me geography, strategy, and negotiation. Whether you are just starting to build your financial IQ, or a seasoned veteran, board games can help you learn quite a bit about investing. The best part? They’re interactive and fun.

Check out these games if you want to increase your financial IQ and have fun doing it.

Monopoly

Does “go past go, collect $200” ring any bells?

I’d venture to guess that most people reading this have played Monopoly before. It’s a timeless game about acquiring properties, utilities, and railroad companies. The objective of the game is to make the most money off of your investments as you can while outlasting opponents. Although it can be quite long, it’s actually filled to the brim with great lessons about money management.

1. Trading Up

In real estate there’s a tax deferred strategy called a 1031 exchange. Without getting into too much detail, it essentially allows you to trade one like property for another while deferring your taxes on this transaction (potentially) indefinitely by repeating this process over and over. In Monopoly, once you own all properties of a like color, you can begin to build houses. Build enough houses and you get hotels. Build enough hotels, have a little luck and you might just win.

The concept of trading up is pretty simplistic, yet can have enormous financial benefits. Let’s say you own all of the red properties. Without a house on Kentucky Ave, rent would cost $18. But, by having just 1 house your rent goes up to $90. By the time you build a hotel, your rent is up to $1050. You can single-handedly win games with this strategy, just as you can win the financial game by trading up.

2. Location, Location, Location

Another heavily real estate related lesson is the power of location. Understanding why certain areas are more expensive than others will help you land the best bargains and help you avoid losing investments. Knowing that a property is close to desirable sites allows you to rent or sell for a higher price. In order to know what these places are, you have to do your research within a community. This also applies to Monopoly.

In Monopoly, you might have property scattered across the board. You might also be willing to pay a premium price for something if it helps allow you to start building houses. To each player, the value of a given property might vary based on their needs. If you can find someone willing to sell a good location at a bargain price because they need cash or another property, this is like finding a motivated seller in real estate. These types of transactions in real life and in the game can help you build great wealth by understanding the value of locations.

3. Return on Investment (ROI)

The only way to be financially successful at anything involves a deep understanding of ROI. This relates to time spent on a project as well as how much money you put into something for a given return. On one end of the spectrum are conservative investors buying CDs (certificate of deposits) for 3% while others might choose highly speculative stocks that have the potential to earn 1,000% returns…or none. In any given opportunity, you need to be able to distinguish how much something costs and what you will get in return for it. Look into the upside as well as the downsides before making these types of decisions. A great way to practice this skill with very low risk is to play more rounds of Monopoly.

In Monopoly, each set of colors on the board has inherent advantages and disadvantages. Since the Purple properties are cheaper, you can get in at a low price, but they might not yield as much in rent. In contrast, the coveted dark blue properties are the most expensive to buy, and also have the highest rents. There are also middle of the road priced deals in the game such as the red properties. When considering a purchase in the game, you need to consider how much money you are willing to put down and what you might get in return.

Let’s compare two different properties.St. Charles Place (Pink) and Pacific Ave (Green). St. Charles Place costs $140 and gets $10 for rent to start, in other words, this is a 7% return (10/140= about 7%). Pacific Ave costs $300 and gets $26 rent or a roughly 8.5% ROI. Understanding the barrier of entry and your return when you buy a property can help you maximize returns and find good bargains.

4. Negotiation Skills

Negotiation is an art that translates to most facets of life. Whether you’re trying to choose a restaurant to eat at with your wife, buying a car, buying a house, or asking for a raise, negotiation is a crucial part of society. Having an understanding of the other party’s needs and learning how to present benefits of a transaction are two key elements to success in this realm. Play Monopoly enough and you’ll become a shrewd negotiator in no time!

As each player in the game of Monopoly acquires assets, they begin to have more bargaining chips. This can be in the form of money, property, or other valuable holdings. By learning to recognize each player’s goals based on clues from their assets, you might be able to strike a bargain. If you have something that they desire, you can leverage that by making a mutually beneficial offer to them or you can see how much you can get. If you want to build a long-term trade relationship, one approach might be better than the other. This goes for real life as well.

Settlers of Catan

WARNING. This game is highly addictive.

Settlers of Catan is probably a little lesser known than Monopoly, but once you learn it will become part of your regular rotation. It’s a strategy and economics based game where you gather resources, build roads, acquire armies, and build settlements. A unique feature that makes this game especially fun is the ability to change the board (it’s kind of like a hexagon puzzle) after any given game. This teaches you how to adapt and keeps things interesting. But how does this relate to wealth accumulation and finances?

1. Supply and Demand

Supply and demand is a pretty straight forward concept. During the COVID-19 pandemic, there was a shortage (low supply) of masks but the demand was high because people wanted to protect themselves from the sickness. As such, the cost of a mask or other necessary items increased due to changes in the market. As this begins to subside or the amount of masks produced catches up with demand, the price would be expected to fall again. People need to understand this concept when buying and selling assets. Catan does an excellent job of teaching this concept.

In Settlers of Catan, players place and expand settlements to different resources in accordance with their geography and needs. The only way to accumulate resources is to have a number rolled that relates to a specific resource. Over time this means that resources on more frequently rolled numbers such as 6 and 8 (7 is something called a knight which is unrelated to this point) will be more abundant. Contrastingly, less frequently rolled numbers and the resources associated with them will become more rare and thus more valuable. If you find yourself holding valuable resources in your hand, you can demand a steep price for them or hold onto them for your own use. Just as in real investing, you want to have options when it comes to valuable assets and know what to do in each scenario.

2. Diversification

There are varying points of view on the diversification of assets. If you subscribe to Andrew Carnegie’s adage “put all your eggs in one basket and watch the basket,” you probably want to have a less diverse portfolio with more expertise in that area. In contrast, some investors like to have various asset classes or things that balance each other out in times of volatility in the market. Catan shows you how diversification can be used as an advantage as well as a disadvantage.

Depending on your strategy within the game, you will need to compile certain types of resources. You may position yourself geographically to obtain a variety of assets to keep your options open or you might try to create settlements where one resource is plentiful. Like newer investors, less experienced Catan players tend to use diversification as an advantage because it enables them to pivot and not be pigeonholed into one victory strategy. Many veteran investors and Catan players tend to double down on certain strategies for victory and thus certain resources. They create systems that enable them to dominate an industry and force others to deal with them if they want a given resource by essentially creating a monopoly. Regardless of the strategy you choose to pursue, resource allocation and diversification are important skills to have.

3. How to Win Friends and Influence People

A recurring theme you’ll see pervading throughout this post is the ability to negotiate and work with other people. In Catan, as in life, most players are interdependent due to the limited resources in a given area. That means that you need to develop relationships with your competitors. I’ve experimented with various strategies such as not trading with others (hoarding resources), always making sure I win trades, having certain trade alliances, and treating everyone with fairness. In my experience, I’ve found that fairness tends to work best because people are willing to reciprocate and you develop a reputation as being reasonable as the game goes on. If you use people to your advantage, you may succeed in the short term. In the long term, however, people will begin to avoid you like the plague because they will feel that you’re cheating them. Building a good reputation, in contrast, pays off far more in the long term. You will be well regarded and sought after due to your amicability. It’s important that we all learn How to Win Friends and in effect influence people.

Cashflow

Are you stuck in the 9-5 rat race?

Cashflow was made by the author of Rich Dad Poor Dad, Robert Kiyosaki. In it, you learn quite a bit about financial math in order to escape the dreaded rat race and work your way towards financial freedom. This game is incredibly realistic and fun to play. It’s different than most games I’ve played, but it reminds me of a marriage between the game Life and Monopoly. The learning curve is a little steeper, but these lessons are so realistic that you’ll regret not playing.

1. Leveraging Capital

Think of leverage as a tool that can help you acquire something far more expensive than what you actually have to pay upfront for it. Business owners and real estate investors use leverage in a variety of ways. Consider the average Joe homeowner. With as little as 3% of the cost of a house, they can get the keys to the entire building. Let’s say a house costs $100,000, that means for just $3,000 (3%) you can own something worth $100,000. Leveraging capital is essential to anyone looking for financial freedom.

In Cashflow, Robert Kiyosaki made it a point to incorporate leverage everywhere. You can take loans to acquire assets, buy real estate, create startups, and even make deals with other players. This gives you advantages with low initial payments and high upside. Take for instance starting a widget company (one of the cards you can draw). At first, you might need to put $1,000 in with no return, but if the right card comes up, this widget company might be sold for tens of thousands of dollars or produce passive income. This is an example of leveraging time.

2. Income Statements

Perhaps the most important feature of this game, and any game mentioned. Understanding how an income statement works helps you break down finances into buckets. Seeing how each component is related to the others is eye-opening. Once a player in the game learns how to increase assets and passive income and/or decrease liabilities and expenses, they are likely to escape the rat race.

When I play with my friends, we now use our own personal income statements rather than those predetermined by the game. In doing so, we have learned the best strategies for each of our careers, wants, and needs. It’s incredibly relevant and gets you excited to do the same thing in real life as you’re doing in the game.

3. Passive Income

Whether you’re seeking financial independence, just learning, or already financially free, passive income is the way to get what you want in life. Passive income is earnings derived from a rental property, limited partnership, or other enterprise in which a person is not actively involved. This is so important because as you build passive income streams, you begin to have more free time.

The entire premise of the game Cashflow is to generate passive income that exceeds your expenses. In doing so, you can become financially free, just like in real life.

Final Thoughts

Board games are a great way to learn about personal finance and investing. If you want to have fun and take an active role in growing your financial IQ, I highly recommend checking out these games.