The Banking Crisis – DeMystified

ACE DollarsI had to explain the banking crisis to Bella this morning.  In the one minute before the bus pulled up, this is what I came up with:

“Mommy, what are you and Daddy talking about?  What happened last week?  What’s a bank?  What’s going on?  What happened?”
Big breath – glance over at Steve who smiles and says good luck.
 
“There are two types of banks in the world – big banks, and little banks.  Little banks are for people like us – like our Commerce Bank where you get the lollipops and the yoyos.  Banks make money by keeping money for people – like you with your tooth fairy money – and lending money to people.”
“What’s lending?”
“That’s when banks give money to people for a little bit when they need it.  Then, when the people pay it back, they give a little extra money to the bank to thank them.  It’s when you need a big thing – like if we wanted to add another bedroom and bathroom to our house, we would go to the bank and ask them for $10 and then when we paid them back, we would give them $13.  Does that make sense?”  Do you like that interest rate?  Or my cheap bathroom?
 
“Yes.”
“Okay.  So the big banks do the same thing for big companies.  Like if Maggie Moo’s wanted to open another ice cream shop, they would go to a big bank and ask for a lot of money.  The problem is that there are good people and bad people to lend money to.  Banks should be careful, but they weren’t.  They gave money to everybody.  See, some people borrow money for everything, and then they can never pay it back.  So the banks could not get their money back, and they had to close.  And now it’s all a big mess because most of the big banks are closing.”
“So what’s going to happen?  Will I still get lollipops?”
“Probably nothing.  Definitely nothing to us.  But what’s going to happen right now is that you’re going to miss the bus, come on!”

8 Responses to The Banking Crisis – DeMystified

  1. >What a great explanation! I think you actually explained it to ME better than anyone else has – haha – shows you what level I’m on.

    You’d be an amazing teacher. 🙂

  2. >You did a great job of explaining a BIG topic! I haven’t discussed it with my daughter because I know she would worry about it. We went to see the Kit Movie this summer and she worries that could happen to us. She is 8 years old.
    You handled it really well.

  3. >Fabulous explanation! I have to ask: in your efforts to “simplify” it a bit for her understanding, did it help you understand it a bit better? Whenever I’ve found myself confronting a “big” issue with the kids, invariably, I feel better about my own comprehension better afterward!

    Great work!

  4. >That was a fantastic explanation. And when your contractor is done with that addition… can you send him our way? We could use a $26 second story. 😉

  5. >That is a really great explanation and easy for young minds to grasp, I can’t explain anything in a child friendly manner! I guess that is why I am not a teacher 😛

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