Forums · The financial crisis, as explained to a 14 year old, with a Pokémon analogy
Original Source
The following is an actual conversation I had with my younger sister, Olivia. She likes to draw, play World of Warcraft, and now, she's the only fourteen-year-old girl who understands the U.S. economic crisis.
Kevin: Have you been following the news?
Olivia: Yeah, I don't really get it.
Kevin: Imagine that I let you borrow $50, but in exchange for my generosity, you promise to pay me back the $50 with an extra $10 in interest. To make sure you pay me back, I take your Charizard Pokémon card as collateral.
Olivia: Kevin, I don't play Pokémon anymore.
Kevin: I'm getting to that. Let's say that the Charizard is worth $50, so in case you decide to not return my money, at least I'll have something that's worth what I loaned out.
Olivia: Okay.
Kevin: But one day, people realize that Pokémon is stupid and everyone decides that the cards are overvalued. That's right--everybody turned twelve on the same day! Now your Charizard is only worth, say, $25.
Olivia: Uh-huh.
Kevin: At the same time, you're having trouble paying back the $60 you owe me. So what would you rather do: try and pay me back the $60 or just default and give me your $25 Charizard?
Olivia: I'd give you the Charizard.
Kevin: Exactly. Who wouldn't? Now, the bank--I mean me--has lost $25 when I expected to make $10. What's the lesson here?
Olivia: Pokémon is dumb.
Kevin: True, but keep going.
Olivia: That Pokémon cards might be worth less later than they are now?
Kevin: Close. You just can't rely on them appreciating in value forever. There's one other good lesson in this analogy.
Olivia: That you shouldn't lend me money?
Kevin: A-ha, exactly right! You're fourteen and have no source of income. What would convince me to lend you money if I'm not sure you can pay it back?
Olivia: Because you could've taken my $50 Charizard. So you could have either made $10 or gotten something worth what you gave me. If people didn't realize Pokémon was dumb, then there was no way for you to lose anything.
Kevin: Now, instead of a loan of $50, imagine that it's hundreds of thousands of dollars; then instead of a Pokémon card, it's your house. The U.S.'s prosperity was built on the idea that real estate/Pokémon would never go down. Multiply this wishful thinking by thousands of people in America and you can see the scale of our problem.
Since you couldn't pay me back, I can't pay my bills and I can't loan out any more money. Our country is dependent on the ability to borrow money.
Olivia: That doesn't make any sense. If I borrow money from you, I'm going to spend it.
Kevin: Well, the idea is that you'll spend it in a way that will make you more money in the future--like college or starting a business.
Olivia: Oh, okay. I have a question for you: did you use the Pokémon example because you think I'm a nerd?
Kevin: I just wanted to make it easy for you to understand.
Olivia: Fine. But stop telling people I play World of Warcraft. I'm totally over that.
Kevin: Don't worry, Olivia. I used to be into way nerdier things. Have you heard of Magic: The Gathering?
Olivia: What the hell is that?
The following is an actual conversation I had with my younger sister, Olivia. She likes to draw, play World of Warcraft, and now, she's the only fourteen-year-old girl who understands the U.S. economic crisis.
Kevin: Have you been following the news?
Olivia: Yeah, I don't really get it.
Kevin: Imagine that I let you borrow $50, but in exchange for my generosity, you promise to pay me back the $50 with an extra $10 in interest. To make sure you pay me back, I take your Charizard Pokémon card as collateral.
Olivia: Kevin, I don't play Pokémon anymore.
Kevin: I'm getting to that. Let's say that the Charizard is worth $50, so in case you decide to not return my money, at least I'll have something that's worth what I loaned out.
Olivia: Okay.
Kevin: But one day, people realize that Pokémon is stupid and everyone decides that the cards are overvalued. That's right--everybody turned twelve on the same day! Now your Charizard is only worth, say, $25.
Olivia: Uh-huh.
Kevin: At the same time, you're having trouble paying back the $60 you owe me. So what would you rather do: try and pay me back the $60 or just default and give me your $25 Charizard?
Olivia: I'd give you the Charizard.
Kevin: Exactly. Who wouldn't? Now, the bank--I mean me--has lost $25 when I expected to make $10. What's the lesson here?
Olivia: Pokémon is dumb.
Kevin: True, but keep going.
Olivia: That Pokémon cards might be worth less later than they are now?
Kevin: Close. You just can't rely on them appreciating in value forever. There's one other good lesson in this analogy.
Olivia: That you shouldn't lend me money?
Kevin: A-ha, exactly right! You're fourteen and have no source of income. What would convince me to lend you money if I'm not sure you can pay it back?
Olivia: Because you could've taken my $50 Charizard. So you could have either made $10 or gotten something worth what you gave me. If people didn't realize Pokémon was dumb, then there was no way for you to lose anything.
Kevin: Now, instead of a loan of $50, imagine that it's hundreds of thousands of dollars; then instead of a Pokémon card, it's your house. The U.S.'s prosperity was built on the idea that real estate/Pokémon would never go down. Multiply this wishful thinking by thousands of people in America and you can see the scale of our problem.
Since you couldn't pay me back, I can't pay my bills and I can't loan out any more money. Our country is dependent on the ability to borrow money.
Olivia: That doesn't make any sense. If I borrow money from you, I'm going to spend it.
Kevin: Well, the idea is that you'll spend it in a way that will make you more money in the future--like college or starting a business.
Olivia: Oh, okay. I have a question for you: did you use the Pokémon example because you think I'm a nerd?
Kevin: I just wanted to make it easy for you to understand.
Olivia: Fine. But stop telling people I play World of Warcraft. I'm totally over that.
Kevin: Don't worry, Olivia. I used to be into way nerdier things. Have you heard of Magic: The Gathering?
Olivia: What the hell is that?
[QUOTE USER="fineifold" TIME="1251182598"]In my 8th grade honors english, half the class decided america should print more money to end the economy crisis, my friend and I tried to explain everything to them and they thought we were retarded... and my teacher called us all queers...[/QUOTE]
I lol'd
I lol'd
