Hey everyone, it’s Finance Fridays again. Today we’re going to talk about the creation of “The Chuck E Cheese Token Economy“.

The Chuck E Cheese Token Economy?

Yea.

It’s kind of weird sounding, but bear with me.

In general, I’ve done my best to learn about finances in my adult life. I understand and accept that I was woefully behind during my college and medical school years. I didn’t even start learning about finance at all until my residency years. However, in general, I did learn about the Value of a Dollar at a young age and I have my parents to thank for that.

That said, I want to teach my children about the Value of a Dollar as well as understand how invest earlier in their lives. In general, at its core, investment is a lot of delayed gratification. You have a certain amount of money and you put it somewhere (index funds). Over a long arc of time, you keep putting more money into it and it grows until you reach your goal. This is a very difficult concept for children to grasp. It’s more than just “saving”, it’s that there is a bigger payoff at the end the longer you save for.

How do you demonstrate that to children?

Well, I’m not quite sure yet. For now, my wife and I are going to try the old method of a reward. We want good behavior to be rewarded. At this point in time there is no penalty for bad behavior, but that may come with time as well.

For my daughter, who is 5, she understands the concept of being rewarded with something when she does something good. She even understands the concept of a placeholder such as a coin or piece of paper that she “saves up” in order to get something. However, my son, who is only 3 does not understand this concept. The “coin” or “piece of paper” has no intrinsic value to him in his concrete world.

That said, he does love Chuck E Cheese. He is acutely aware of the inherent value of the Chuck E Cheese token. We’ve chosen to buy Chuck E Cheese tokens and reward the children for good behavior. For example, for Kylie, it could be sitting and doing her homework/Kumon everyday. For Lucas it could be for listening to Mom/Dad/Grandma/Grandpa and following directions.

How did it go?

As you would expect Kylie immediately grasped the idea of reward for good behavior and tried to push the boundaries of what she could get everyday. For example, she started pulling out our hand held vacuum after dinner and vacuuming around the dining table. She also started to pick up toys in their play area without being asked. Then she would come over and proudly state “I vacuumed” or “I picked up toys”, with the expectation that she would receive more tokens.

We had to explain to her thank you for helping, but tokens aren’t earned from doing any specific task, but just for good behavior in general. Mom, Dad, Grandma, or Grandpa will decide when tokens will be given.

Kylie isn’t technically saving tokens toward a Chuck E Cheese visit, instead she has chosen to save toward a toy she wants (a particular Barbie). Since she has chosen a reasonable goal, we’ve set a goal of 25 for her. I’ve explained to her that larger or more expensive rewards would require saving more tokens. However, currently the only goal in her mind is a certain Barbie we saw (Baker Barbie, I think). She was very particular about it having the icing piping bag.

What about Lucas?

I think Lucas understands the inherent value of the token, although in a more concrete way. Every token he gets is another token to have fun at Chuck E Cheese. The more tokens he gets, the more fun he can have. Very simple and concrete thinking.

However, I want him to understand that there is no Chuck E Cheese Visit until he has a certain amount of tokens. We’ve decided on 50 for him since it’s a bigger goal/reward.

He’s been a little more difficult to keep on track in terms of earning token rewards. I think he understands the concept, but without the instant gratification he seems to forget about it. For this reason, we try to remind him about who many tokens he has and the ultimate goal of a Chuck E Cheese visit. So far, he’s responded pretty well.

Where do they keep them?

Good question.

Although we could have just done a simple piggy bank, I felt it was important for the container to be see-through so that the kids would always be able to see how many coins they had. Like I said, children are very visual, especially Lucas, since he’s only 3. They will want to know how many token are in their bank at all times.

Our initial thought was to use a Snapple bottle (since they’re plastic now). However, my wife had the genius idea of using Tall plastic cups from Starbucks. We let the children decorate their own cups with stickers and there is an L for Lucas on his and a K for Kylie on hers. Then we chose a spot in plain sight right next to the TV for them so they could always see them. Then just cut the plastic lid top so the slit is big enough for coins and you’re all set. Here’s what they look like:

My wife thinks that it is important in the beginning to make the tokens relatively easy to get. The children need to know that the reward at the end is real. At first I was a little against making it too easy, but now I agree. Especially for someone so young like Lucas, he needs to know that the reward at the end is real.

Interesting, where do you go from here?

Well, once they understand the inherent value of the tokens better, I need to instill the importance of saving in them. More so than that, they need to understand the concept of compound interest.

I was thinking of something like at the end of every month they can sit with me and decide how many of their tokens they want to “lock away” out of their token pool. The idea will be very simple. For every 5 tokens you decide to save and remove from your “pool”, I will give you an additional 1 token. (20% interest!) I think round numbers like this make it easy to understand.

However, they must understand that this token is locked away in a container separate from their Starbucks bank cup, and can’t be used for awhile. I’m not quite sure what “awhile” will be. For this example, let’s say 3 months.

So then Kylie elects to save 5 tokens and lock them away for 3 months. She will receive an extra token just for doing that. Then she will receive an extra 2 tokens at 2 months and at 3 months — which I will show me putting them into the separate container. Maybe we’ll call the container “the vault” so they know it’s untouchable. So after the 3 months, she will have 10 tokens. She put 5 tokens in and can’t use them, but will receive 10 tokens later — for doing nothing except choosing not to use them ahead of time.

My hope is that she will understand the value of doing nothing which is the core concept behind compound interest.

I hope that she asks me some important questions:

• “What do I get if I lock away 10 tokens instead of 5?”
• “Do I get even more tokens if I don’t use them for longer?”
• “What if I leave my 10 tokens in there?”

Then we can talk some more.

I’ll keep you guys updated.

TL;DR

The Chuck E Cheese Token Economy has started up.

I’m hopeful that it will teach my children The Value of a Dollar.

More so than that, it sets the stage for future talks, like compound interest.

As they get older and ask more questions, I can teach them more.

-Sensei

Agree? Disagree? Questions, Comments and Suggestions are welcome.

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