The Economy of Debt: A Kid's Lesson in Loans, Business, and Financial Responsibility"

Today, I stumbled upon a story that completely reshaped my understanding of the economy. It was about a summer camp called BizTown, designed to teach children between the ages of 10 and 12 the basics of economics and business through a hands-on simulation. Kids at BizTown are given the opportunity to run businesses, apply for jobs, borrow money, and learn the realities of running an enterprise. What initially seemed like a light-hearted program turned out to be a window into the deeper forces shaping our economy. It made me realize that what these children were learning about wasn’t just business—it was an economy driven by debt, not profit.

At BizTown, each child is given the chance to run a business, whether it’s a bookstore, restaurant, insurance agency, or a home décor shop. They start by applying for a loan from one of the two banks in the town, which serves as the backbone of the entire economic structure. The process starts simple enough: kids need a business plan, they apply for a loan, and if approved, they use that money to get their business off the ground. However, the catch is that they must not only run a profitable business but also pay back their loans over time.

The Role of Banks and Loans in BizTown

The banks in BizTown play a central role in the operation of the economy. There are two banks: KeyBank and a credit union. Unlike real-world banks, these two institutions don’t compete over how many loans they give out; rather, they compete over how many loans are paid back in full. In essence, these banks are more concerned with whether the businesses they lend money to will be able to pay back the loans, rather than whether they can distribute as many loans as possible.

KeyBank takes a stringent approach to approving loans. They will only approve loans for businesses that present a solid business plan with no errors in their financial projections. If a business plan contains mistakes, KeyBank will reject the loan, but they’ll also require the borrower to correct their mistakes and resubmit the plan. In contrast, the credit union operates in a more lenient manner. When KeyBank’s CEO had to track down a business to correct their plan, the credit union’s CEO boldly stated, “I would have approved the loan on the first try.”

This competition between the two banks is not about how much money they lend out, but about ensuring the businesses they lend money to are able to pay back their loans. In a way, this reflects the nature of our own economy, where borrowing and debt are crucial components of how businesses grow and stay afloat. But it also raised a critical question: is the economy we live in centered on building sustainable businesses and creating profits, or is it built on borrowing, repaying, and accumulating debt?

The Economy of Debt in Practice

As the children in BizTown begin to run their businesses, the realities of debt quickly set in. The businesses are encouraged to focus on paying back their loans by generating enough profits. For example, one insurance company took out a $75 loan but only sold three $15 policies. Even after deciding to allocate $30 of their profits to pay off the loan, they were still $45 short. Despite their best efforts, the business was still unable to meet its financial obligations.

Here’s where the simulation takes an unexpected turn. In a real-world situation, businesses that are unable to repay their loans might face bankruptcy or foreclosure. But at BizTown, the children didn’t have to face such harsh consequences. The camp’s directors stepped in and “subsidized” the businesses that were struggling to pay back their loans, depositing just enough money into their accounts to ensure they didn’t fail. The kids were thrilled, but they didn’t ask where the extra money came from.

When a journalist questioned the camp director about the mystery money, the director explained that the camp had the ability to “subsidize” struggling businesses so that the children didn’t feel like they had failed. The journalist pressed further, asking, “Isn’t that socialism?” The camp director stumbled over the word and tried to explain that the children were still learning about the consequences of failure, and that dealing with bankruptcy and business failure should be left to the adult world.

This intervention raised some uncomfortable questions about the nature of the economy BizTown was teaching. Was it realistic? Was it promoting the idea that failure could always be avoided, even at the cost of bailing out failing businesses? In the real world, such interventions are not always available, and many businesses must face the harsh reality of defaulting on loans when they cannot pay them back.

A Personal Reflection on Debt and Financial Responsibility

While the lesson taught at BizTown is important in helping children understand basic business concepts, it left me reflecting on how we, as adults, approach debt and financial responsibility. The culture of borrowing money, using credit, and taking out loans is deeply ingrained in the American economy. For many, debt is seen as a necessary tool for growth—both for individuals and businesses. But my philosophy has always been different: I believe in living within my means, avoiding debt when possible, and saving for the future.

Over the past 20 years in America, I’ve only taken out three loans: a mortgage that I’m paying off ahead of schedule, a car loan that I paid off in 16 months instead of 24, and another car loan that I’m also paying off early. For me, living within my means and paying off debt early not only brings peace of mind but also saves money on interest in the long run. I’ve taught my son to embrace this philosophy, ensuring that he understands the importance of managing money responsibly.

What Does the Economy of Debt Mean for the Future?

BizTown’s lesson about debt reminded me of the broader forces at play in the real world. We live in an economy where debt is often necessary to succeed—whether it’s for buying a house, starting a business, or funding a college education. But the lesson also made me question whether we should be encouraging a system that relies so heavily on borrowing, rather than teaching people to live without debt or focus on sustainable business practices.

In BizTown, the children learned that debt was a tool—a necessary part of running a business and staying afloat. But in real life, debt can become a burden, especially when it accumulates faster than the borrower can repay it. As we continue to teach future generations about money and economics, it’s important to strike a balance between understanding the role of debt and encouraging financial independence. After all, true economic stability doesn’t come from borrowing endlessly—it comes from living within our means and making responsible financial choices.

In the end, BizTown may be a simplified version of the economy, but the lessons it teaches are real. It’s up to us, as individuals and as a society, to decide whether we continue down the path of a debt-driven economy or find a better way forward, one that prioritizes sustainable growth, responsible borrowing, and financial independence.

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