I’ve had a huge revelation today and it was truly accidental.
I was driving to my favorite berry farm, listening to a radio program about a summer camp run for 10-12 year-old children to learn the basics of economics. The camp was called “BizTown” and the kids first were supposed to apply for a particular job in town, go through a job interview, and then get hired into a job. Not all kids got the job they wanted but most did. And then they were supposed to start a business from scratch. Of course only after they completed some training in debit and credit and foundations of running a small business.
Where do you get the money for a new business if you have none of your own and only a symbolic collateral, which is actually explained to the kids as a part of a crash course in economics they’re taking? – Oh, the bank of course. You go and apply for a loan, but you have to have a good business plan with solid numbers.
All good and dandy so far: the kids are getting the basic knowledge of how the economy works and practice it in this experiment with online money and computer transactions. A better version of Monopoly.
There are two banks in BizTown: a KeyBank and a credit union. The banks compete not in how many loans they give out but in how many loans they get paid back in full. At the same time, they have to sell the loans and make sure that the business plans they are getting for them are solid. For example, the KeyBank had to reject a loan that had miscalculation in the numbers and then the bank CEO hunted down the business that submitted it, to correct the mistake and resubmit. When the credit union CEO found out that his competitor’s CEO had to hunt the business to resubmit, he said, “I would have approved the loan on the first try.” A future bank CEO right there.
So the kids then run their book stores, insurance agencies, restaurants and home decor companies with the goal of not only making the profit but also paying off the loan. “They are taught the basic elements of the capitalist economy of debt,” the journalist covering the story said and my jaw dropped.
That was my biggest revelation. I’ve been living in America continuously since 2004 and I only now realized that I’m living in the economy of debt rather than the economy of profit. This is why Americans are so easy with the credit card debt, I suppose, because they’ve been taught and convinced that to keep the economy moving you need to take out loans and lines of credit that you will be paying off through your hard work.
My philosophy in this is different: I would never take out a loan without putting up at least one-third of the money as a down payment and knowing for sure that I will have enough flowing income to make the monthly payment and a little bit on top of it, so that I cut the time of paying it off and save on the interest. In my entire 20 years here in America I’ve taken out only three loans: my mortgage that I’m still paying, a year ahead of schedule now; the first car loan that I paid off in 16 months instead of 24 and saved myself a lot of money in interest by paying it off earlier; and the second car loan that I’m also paying off now, on track to do it in one year instead of two. I call that living within my means and I made sure I taught my son to live life the same way.
But what happens if you are unable to pay the loan back? The kids in BizTown started to sacrifice their profits and cut on operational expenses (reducing salaries and perks to employees, basically) so that they could pay back to the bank. Not a wise decision in the first place but understandable. And even with that, several businesses couldn’t make it. Like that one insurance company that took out a $75 loan but only sold three $15 policies. Even after they decided to pay $30 of their profit back to the bank, they still were $45 short to pay off the loan.
And then… the adults running the camp saw that the insurance company and some other businesses in BizTown, like that little home decor and postcards shop, were lacking the money to pay off the loans. Miraculously, a little over what they needed dropped into their accounts out of nowhere, and the kids were so happy they didn’t even ask what was the source of that savior money.
But the journalists covering the story did. When they asked the camp director where the mystery money came from, he responded, “We have the ability to subsidize so that the kids don’t feel like they failed in running the business.”
“So, you give the money out to the businesses that are failing and may default on their loans so that the kids don’t feel bad about not being able to run them at a profit and pay off the loans,” the journalist clarified. “Isn’t that SOCIALISM?”
The camp director couldn’t push the word “socialism” out of his mouth and went into a long and winding explanation stating they are still kids and learning about failing a business, bankruptcy, and other responsibilities should be left for the adult life.