Numerous studies prove that people are more frugal when paying with cash than when using other forms of payment - especially credit cards and electronic transactions. Why? Cash is tangible. You literally feel pain as you hand over each hard earned bill. That’s why so many parents feel strongly about using bills and coins to teach their kids about money. The less abstract and the more tangible the better, right?

Well the challenge for us parents is that our financial world is moving more and more away from cash. The “convenience” of plastic and technology encourages spending, and that’s a good thing for many big companies who want us and our kids to spend more.

That’s why I’m here with Bill Dwight today. He’s the founder of FamZoo, an online money management system for parents to help their kids learn to manage money effectively.

 Nancy: Hi Bill, I’m looking forward to learning more about FamZoo. Tell us a bit about the challenges of teaching kids money skills in today’s world.

Bill: Thanks Nancy. The challenge is, your kids aren’t going to be using much (if any) cash when they get older. The world is getting more cash­less every day, and there’s really nothing parents can do to arrest that accelerating trend. So, how are we preparing our kids for that undeniable reality?

FamZoo offers an effective solution by teaching kids that the account balance they see on a computer screen or a mobile phone represents real money. The FamZoo system helps kids make an explicit, visceral connection between making a purchase (regardless of payment method) and seeing that abstract number ­- the account balance -­ go down. It also teaches them to manage that critical number responsibly. If you introduce your kids to online and mobile banking concepts early, they’ll be better prepared for the real world later.

Nancy: Are you worried that children can’t grasp managing money as an abstract number?

Bill: Parents are surprised how quickly even the youngest catch on. You’ve probably seen them master far more complicated concepts in video games already.

Nancy: Learning things at a young age can definitely be easier and less intimidating than when you’re a teen.

Bill: Yes.  Unfortunately, most banks require kids to be in their teens before they can have a checking account, and traditional banking products really aren’t designed for kids anyway. FamZoo is a solution that let’s the family create its own private online banking experience. You create accounts for each of your kids and teach them that the current balance represents how much money the bank (you!) owes them. Add to the balance when your child earns money. Subtract from the balance when your child withdraws money from the bank (you!) or when you spend money on your child’s behalf. Teach your kids to carefully monitor their account balances. Require your kids to consult their balances before they ask you to make purchases for them. Don’t have enough? Wait and save. After purchases are made, show your kids how the account balance has gone down accordingly. Condition your kids to feel purchases even though no physical cash changes hands.

Nancy: So how do you set about running your own bank?

Bill: You have a choice. You can just use paper and pencil or a spreadsheet to record the transactions in each account manually, but that ends up being quite a bit of work. And neither approach is particularly accessible or engaging for the kids. Fortunately, there are now several virtual family bank services like FamZoo that automate most of the work for parents and provide convenient, friendly online and mobile access to the kids. In just a few minutes, you can register your family online, set up your kids’ accounts, set up income sources (allowance, chores, odd-­jobs, interest, etc.), and have your online virtual family bank up and running.

An added bonus of ditching the cash and going the virtual family bank route is that you can easily split your kids’ deposits between accounts without needing to keep just the right mixture of coins and dollar bills on hand. So, if someone is using your Give, Invest, Save and Spend (GISS) Method with their kids, you can just define the percentage splits once up front (see below), and have them apply automatically to the weekly deposits going forward.

That’s just the tip of the iceberg of what you can teach your kids with FamZoo’s virtual family bank. Your readers can check out our FAQ to learn about making savings goals, defining parent ­paid interest, sharing family expenses, tracking loans and much more.

Thank you for your time Bill. I’ll be trying out FamZoo with my kids, so I’m excited to be taking this step with many other families.

Parents, if you’re ready to start preparing your kids for the reality of a cashless society, you can start your own online family bank today at FamZoo.com.