For years, we used a paper system to mark points for our kids. Then, when we finally finished programming the Moneypants app, we no longer needed the paper point charts taped to the fridge. Everything was now digital. No more losing papers. We would always have everyone’s point totals with us. We were mobile, baby!
Then we had a great idea. Instead of using the app to just keep track of points, why not use the app to keep track of money, too? Why should we pay our kids cash at all? Why not just let the app track all that money and use it as a virtual currency?
Mom and dad would act as the bank (the old “Bank of Mom and Dad” routine), and we would just swipe our family debit card if one of our kids wanted to spend any of their money. We would subtract that amount from the kid’s piggy banks in the app. No money would ever have to exchange hands. It would be like virtual credits.
We figured this would make our lives a lot simpler for us the parents. We would not have to go to the bank to grab cash out. We would not have to worry about kids stealing each other’s money or losing their own money. We would not have to worry about kids spending their money inappropriately (buying things that were against the family rules). The app was there. It was already tracking the kids’ income and expenses. Why not go full on “virtual” with the money?
So, we tried it out. No more cash. We have used this concept for a few years now, and we learned that there are some serious drawbacks to using a virtual currency, especially with kids.
In short, it didn’t really work.
Fees Do Not Work
The first thing we noticed was that the kids didn’t care if they got a fee. We would tell them they got a fee, and they would shrug and say, “Okay, just mark it on the app.” Before the virtual currency, a fee was a major threat. The kids would avoid fees at all costs. Fees were painful and awful.
For example, it used to be that I would charge the kids a small fee for disobedience. It could be for fighting, for teasing, for bad language, for lying, etc. I would have them go get their cash from their account and hand me $1. It was amazing the power that $1 had. More often than not, the kid would start crying and ask if there was anything they could do to get the money back.
It was only one dollar. A single dollar. They probably had over $100 in their cash envelope, and yet they were really upset about a dollar.
I recall one time I had to collect a fee from my son Caleb for taking someone else’s stuff. At the time, I think he had close to $700 in his personal bank account. He had plenty of money. But that one dollar was a powerful deterrent for him. He got very upset and vowed to never get into someone else’s stuff again. The fee did the trick.
But once we went to the digital currency, the kids didn’t really mind the fees. It was frustrating.
Spending Becomes Frivolous
The second thing we noticed was that our kids started buying junk. They didn’t care what it was or how well it was made or if it would last. They just would buy whatever. No shopping around for good deals. No asking for advice. None of that.
This was the complete opposite of what things looked like when we paid our kids cash. I recall taking my daughter Superstar shopping for new shoes when she was about eight. She had her cash envelope with her and was ready to spend her money. However, once she saw the price of the shoes, she did not want to part with her hard-earned money. She opted to get the same shoes somewhere else for cheaper.
Fast forward to last week. We were using digital currency, and we were at the store to buy a new shovel. All of a sudden, each of the kids wanted to buy a shovel. They did not look at the cost or consider that they did not need a shovel. They just bought shovels. It was really odd. It was like an impulse purchase.
On the way home from the store, the kids started requesting to stop by the fast food store to buy milkshakes. Typically, that would be a rare treat. But because they were using digital currency, they didn’t factor in how expensive the milkshakes were. They just wanted one.
Nagging on Shopping Trips
Because my wife was the one swiping her card for the kids’ purchases, the kids started to nag my wife anytime they went to the store. “Mom, can you buy me this?” “Mom, can I get that?” Which was really odd, because it was their money.
It used to be when the kids wanted to buy stuff, all we would have to say is, “Did you bring your money?” It was totally up to them how they wanted to spend their hard-earned money. But now, with virtual currency, the kids had to ask us for access to the money. The kids reverted back to the perception that we the parents were buying stuff for them.
And from the outside looking in, that would seem to be true. We were the ones checking the app to see who had enough money. We were the ones getting out the debit card. We were the ones approving the purchases. We were the ones swiping the card. And we were the ones collecting the receipt.
The kids felt like they were getting the items from us, the parents, not from their own accounts. They weren’t the ones doing the shopping or learning to spend money wisely.
Payday didn’t have the power or impact it used to. When we used cash, that transfer of money was a big deal. The kids would get really excited about how much they earned. They would compare their earnings with each other. If you did not do well, you felt the urge to earn more next week. There was this social pressure to improve. It was like a big team meeting after the game. Everyone was there, and those who needed to improve got the message real quick.
With the app, though, payday was over too quickly. No money exchanged hands. No comparisons were made. No more social pressure to improve. It was sort of ho-hum.
No Prize Bag
Without cash, we didn’t do the prize bag anymore with our toddlers. They didn’t have cash to buy stuff, and so we stopped stocking up the prize bag. This was problematic because the toddlers in our home didn’t learn to work because they had no motivation. That was the point of the prize bag—to show an immediate reward for our younger kids to see. It was to help them see what they were working towards.
Without cash, the prize bag kind of fizzled, and so did our toddlers’ work ethic.
No Emergency Cash
This didn’t even occur to us at the time, but when we stopped dealing with cash, we stopped having a cash reserve at home. We had no emergency cash. The nice thing about paying the kids cash and having it in the family safe was that in case of an emergency, that money could be used to help out. It was a good emergency fund. Now it was non-existent.
In short, the “virtual currency” option did not work. At all. It didn’t teach any of the principles we wanted to teach our kids. The money had very little meaning. The behavior didn’t improve. The spending habits were really bad. The younger kids weren’t learning to work, and we did not have any cash reserves in case of an emergency.
Paying kids virtual money is like giving them virtual candy. It sounds cool, but it is not. It simply does not work.
“Paying kids virtual money is like giving them virtual candy. It sounds cool, but it is not.”
Turns out, our experience is not unique. Cash has power that virtual money does not. Dave Ramsey, who works with adults who have financial challenges, gave a very good explanation as to why cash works better than virtual money.
He talks about the concept of “friction”. The idea is that the harder it is for a person to buy something, the less likely they are to buy it. For example, if there’s a really long line at the store, you’re going to put the item down and walk away. There’s too much friction. This concept especially applies to cash.
Here is why: cash is a funny thing. When you work hard and earn cash for that work, you associate the cash with what you did. The cash is a physical manifestation of your effort. It is very satisfying to hold the cash that you earned. It is as if it is a part of you. And in a sense, it is. You put forth energy and effort and time and transformed it into cash. It is cathartic. And very satisfying.
So, when you go to spend that cash, you feel that a part of you is leaving. You are giving a part of you away. You earned that cash from effort and energy that you gave. You transformed that energy and effort into cash. Giving that cash away feels like a part of you is gone. And you are only willing to do it if the product you receive in return is of equal or greater value than the money you are losing.
“Emotional friction” is the resistance you feel when you go to spend cash. You feel a tinge of pain or loss when you part with your money. It is a weird phenomenon, but it is real. That emotional friction does not occur when using a plastic debit or credit card. Why? Because you get your card back. I have seen it in my own life. I have seen it over and over again with my own children.
But, when you use virtual money to purchase something, you are not handing anything over. You do not feel the friction. You are not losing anything. All that is happening is a couple of numbers on an app are changing. That is it.
Similarly, what if you use a plastic debit card to purchase something? You give the card away, just like in the cash example. There is that feeling of friction. But then, the cashier gives you the card back. Plus, you now have new stuff. Psychologically, the friction is completely gone. If anything, there is the opposite of friction. The whole transaction is actually an enjoyable experience. You lost nothing but gained new things. Great!
Except it is not so great.
The problem we ran into with our kids was that without cash, there was no more emotional friction. Because our kids had no cash, they had nothing to lose. The relationship between them and the money they worked so hard to earn was lost.
Stick With Cash
When we changed to using virtual currency, we stopped using cash altogether.
And that was a huge mistake. Our kids didn’t feel the value of the virtual currency, nor did they feel the pain of a virtual fee. The power of money was completely lost on them. Fees meant nothing. And payday meant nothing. It was some ethereal concept where a number on a computer changed. That was it.
When you use debit cards or credit cards or any form of virtual money, the emotional friction is gone. The natural inhibitions of buying something are lost. That part of you that says, “This is not a good deal” goes away. That is when you overspend.
So, we recommend using cash. It is powerful and effective. It keeps things real. It keeps money a tangible, understandable concept. That way payday has more meaning. Spending has more meaning. And fees have more meaning. The cash is doing its job and working for you.