Economics doesn’t play a large role in childhood education. Children learn the basics of currency and mathematics in elementary school. They may be taught the basics of interest rates as a mathematical principle, but applied economics is a topic often left until high school for study. Even then, many kids graduate high school (and even college) with only a rudimentary understanding of how the economy truly functions; they may enter adulthood without a clear idea of why certain items cost what they do or exactly what inflation is or why it occurs.
This oversight is a genuine tragedy. As adults, nearly every facet of life is connected intimately with the economy, and economic principles drive everything from politics to personal finances. The sooner a person recognizes their role within the greater economic web, the sooner they will be able to make wise choices about the way they spend their money or what political candidates to support. People with a firm grasp of economic principles are also in a better position to understand world affairs; anyone who doesn’t understand the precise role of money in the development and interaction of nations is missing valuable geopolitical knowledge.
Now more than ever, understanding economics is vital to improving quality of life. People can feel the effects of a global recession, but only by grasping the principles behind it can they see the changes that must be made to solve it. When people truly understand the reason why things cost what they do and how a seemingly minor thing, such as gas prices, can affect every facet of their lives, they can begin making decisions that will contribute to the overall financial health of the nation. It’s never too early to begin teaching these principles to our children.
What Can Parents Do to Help Kids Understand Economics
On a personal level, parents can teach their kids about financial responsibility by laying down the basics of money management skills. Children can earn an allowance and be encouraged to save money toward purchases. They can learn rudimentary budgeting skills starting at a young age, and over time earn additional responsibility in the form of checking accounts, prepaid debit cards or even their first credit cards.
All of these skills are helpful and essential in teaching children about household finances, but they do not touch on the larger themes of macroeconomic principles such as supply and demand, inflation and the free market economy. Although they may be taught these concepts academically, they can be difficult to grasp without a practical application.
One of the best ways to teach children and teenagers about capitalism and the market economy is through games. By creating a virtual simulation, people can see the principles of economics in action. Participating in these games provides children with hands-on experience in the way market-driven economies function and helps provide them with a risk-free way to take chances, experiment with economic models and become savvy with wealth-generating practices. When combined with education that shows the real-world application of these concepts, online gaming becomes a valuable tool.
What Online Games Help Teach Economics?
There are numerous educational games designed to teach children about various financial practices. For example, there is the education-based economics simulator, Beat the Market Online or the World Game of Economics simulator that teaches about exchange rates and economic policies between countries.
These games do have value, but they often miss the opportunity to provide real, hands-on experience with the marketplace because they do not foster free trading between real players. More importantly, most students will recognize them immediately for what they are: educational tools. While some kids are willing to learn in this way, many balk at the notion of an educational game because it feels too much like homework.
The most valuable tool is actually more nuanced, and lies within games that children are already interested in playing. Sites like Neopets or Gaia Online attract millions of users of all ages, and popular multi-player online games like World of Warcraft have a massive draw for kids and adults alike.
While easily dismissed as an unproductive waste of time, these games actually offer something that educational simulators do not: a free user-driven economy where players accrue wealth and make meaningful decisions about how to spend it as part of a larger structured game play. In this sense, these games are like microcosms of real life. Players learn to cooperate, work toward achieving their goals and plan ways to accrue and utilize the resources that they earn.
Neopets: An Economic Primer
Created in 1999, Neopets was the progenitor of what would later become an extremely popular game genre: the multi-player browser-based pet simulation game. In essence, the basic principles of the game are very simple. Users select a pet and feed it, play with it and train it for battle. When stripped to its bare essentials, the game is straightforward and might rapidly grow dull, yet millions of players have been active on the site for 10 years or more. What makes the game stand out and hold infinite replay value for users? Players have the ability to earn, accumulate and grow virtual wealth and use this wealth to improve their social status within the game world.
The game utilizes a virtual currency called “neopoints” (NP) which can be exchanged for goods and services on the site. For example, a user must pay NP to feed their pet, customize its appearance or buy weapons for battling. In order to obtain these points, players can play arcade-style games and gamble with games of chance. The best method of accruing wealth, however, is to utilize the peer-to-peer marketplace to sell virtual items.
Because users are buying and selling items to each other and setting their own prices, the Neopets economy becomes a playground for free market capitalism. Certain site-based shops release items into the marketplace at a low price; users can then resell these items at a significant price increase because the demand for them exceeds the site-generated supply.
Players quickly realize what items make good investments and which are worthless for resale. The items that sell the best are those that are rare or highly sought-after; items available in abundance or with no real use will fail to generate a profit. By learning how to select good items for resale, players see first-hand how supply and demand affects prices in the marketplace. These lessons are then easily transferable to real-world counterparts, from goods and services to stocks and bonds.
Once players have begun earning wealth, they have numerous options for spending, saving or investing that wealth. Players may choose to purchase premium items as status symbols, invest their virtual money into income-generating businesses or use the money to improve their pets or avatar characters. No matter how they use the money, they must make decisions about spending it, and all decisions will have consequences and opportunity costs. In effect, playing simulation games allows children to have a sort of virtual income; they know how much effort it takes to earn the money that they spend, and their choices will be governed by that knowledge.
Neopets may have been the first site of its kind, but many more websites exist now that offer a similar experience to players. Any game that requires a player to generate wealth by trading with other players for virtual currency will provide an enlightening model of capitalism.
The Nuances of Game Economics
Basic principles of supply and demand are not the only lessons players learn from playing games with virtual currency. Because the economy of an online site is an organic, malleable thing, multiple factors may influence the health of someone’s virtual finances. Site administrators will play an almost governmental role in controlling wealth; they may artificially generate demand for certain items, modify the supply or create money-sinks that will help combat inflation. Some of the concepts players can see at work in virtual economies are:
– Artificial Demand
Many items on virtual pet sites and other online games offer little to no actual utility to players. In order to generate demand and increase the item’s market value, a site owner may release a limited number of these items or reduce the number of items in circulation. The extremely limited supply makes the item attractive as a status symbol, and users may covet it despite its complete lack of functionality. This is similar to the real-world diamond trade and other similar luxury goods.
In order to generate a fast profit, players will price their items at a value slightly lower than a competitor’s. This can become especially vicious on game sites because users are usually able to search for any particular item and view a list of shops selling that item; the lowest-price seller will be listed at the top of the list, leading to a rapid sale. While this helps attract buyers, it has the unfortunate side effect of devaluing the item being sold. If enough people get involved in undercutting the competition, the item’s market value can plummet overnight, leaving sellers unable to make a profit. Similar situations occur in competitive industries in real life and it can cripple small businesses; for example, a mammoth retailer like Wal-Mart may lower prices so much that smaller retailers cannot compete and are driven out of business.
– Inflation and Deflation
Game players have relatively few necessary purchases; depending on the game, they may not even need to feed their pets. This means that, at any time, players may have access to massive amounts of wealth. Because of this, virtual economies are even more prone to inflation than real-world economies. In order to combat inflation, a site owner may create a “money sink” on the site. This is something that will reduce the amount of money in circulation without providing a good that can be resold. In a game setting, this might mean adding a game of chance or creating content that requires virtual currency to view it; in real life, this usually involves raising taxes.
– Gold Standard
Many online games offer a special “donation currency” to players. While game play is free, members can pay real-world money for a certain type of currency that can be used to pay for premium items. Because the price of the donation currency is set, this currency maintains its value much better than the regular virtual currency. For example, a site may offer one “gold coin” for $5 USD.
That single gold coin may be equivalent to 100 regular game coins. Over time, however, inflation may cause the exchange rate to change; it may take 1,000 regular coins to equal the value of a single gold coin. This means that savvy players quickly learn that they can invest in gold coins by buying them from other users with regular coins; this provides a way to protect their assets and profit off of inflation. A similar phenomenon happens in real life when people invest in precious metals.
– Exchange Rates
In addition to the exchange of real-world money for game currency, some games actually allow the trading of currencies between sites. In other words, if two players are both active on two different sites, they can trade the currency of one site for the currency of another. This creates some interesting effects when the exchange rate is calculated due to the different rates of inflation between sites. Some players may actually join other websites primarily as a way to generate currency that can be exchanged at a profit in another game. Just like currency trading in real life, this is often a gamble and requires attentiveness to inflation and other factors, but it can quickly generate wealth to people who do it right.
An Imperfect Model
Although many principles of online gaming are very similar to real-world economics, games are not perfect models for life. The primary purpose of a game is entertainment; while players enjoy the challenge of accruing wealth and becoming successful, the game begins to lose its entertainment value when too many restrictions are imposed on players. In the real world, people have bills to pay; in games, players can choose whether or not to feed their pets or spend any money at all.
Nevertheless, game players have a unique opportunity to experiment with financial principles. Whether saving for a premium item or learning the best goods to sell at a profit, players need to use critical thinking skills to succeed. Parents can maximize the value of these online gaming experiences by getting involved with their children and helping to draw parallels between game activities and real-world phenomenon; engaging youngsters in thoughtful discussions about their world helps to develop inquisitiveness, problem-solving skills and an increased capacity for learning and discovery.
If your child develops an interest in online simulations, foster that interest by getting an account and playing alongside them. This will provide you with the opportunity to augment game play with learning; it will also give you some quality time with your kids. Many children are delighted to see their parents take an interest in their hobbies and activities, and making a family affair of online game playing gives you the opportunity to monitor their online behavior while maximizing the educational potential of a game. You may even realize that you enjoy playing just as much, if not more, than your child.