Tontine

Okay kiddo, let me explain the concept of tontines in a fun and simple way. Imagine you and your friends want to save money to go on a fun trip to Disney World. You all could agree to put some money aside every month, and whoever has the most money saved up by the time of the trip gets to plan what rides you all go on first.

Now let’s say that one of your friends can’t afford to put in as much money each month. That friend might feel left out and sad because they won't save up as much as everyone else. This is where a tontine comes in.

In a tontine, you all agree to save money just like before, but instead of the person who has saved the most money getting to plan the rides, the money is split among everyone who completes the trip. So if one person saves more money than the rest, they don’t get to keep it all to themselves. Instead, it's divided equally among everyone who went on the trip. That way, everyone gets to share in the fun of going to Disney World, even if they don’t have as much money saved up.

Tontines were first used a long time ago as a way for people to save money for their later years. A group of people would make a tontine agreement to put money into a pot each month. The last person alive in the group would get to keep all the money in the pot. That might not sound very fair, but it was a way to make sure everyone had enough money to live on when they got older.

So, that’s a tontine – a way to save money together and share the rewards equally. Did that make sense to you, little one?