AMZN Amazon.com Inc

By Julie Jargon 

Lisbet O'Connell wasn't aware her 13-year-old son was spending money on virtual weapons and vehicles in his videogames until she noticed a series of $20 and $30 charges from Microsoft Corp.'s Xbox on her debit card -- all in one day. She then looked back and tallied a three-year total for these incidental purchases: $1,500.

The days of children blowing their allowance on comic books and candy are long gone. Kids are now spending hundreds or even thousands of dollars on more ephemeral goods such as outfits for their videogame avatars and gems to help them level up in games.

Virtual spending is leading to debate among parents and lawmakers over whether it's creating unhealthy financial habits in kids. Some parents are shocked. Others shrug and say, "It's their money!"

The small dollar amounts spent here and there in games, called microtransactions, are a lucrative business model for the gaming industry. While many games are now free to play, kids can use virtual currency backed by gift cards or their parents' bank accounts to buy digital goods. In-game spending globally last year totaled more than $93 billion, up from nearly $41 billion five years ago, according to Nielsen's SuperData game research group.

So why is this different than a child buying a candy bar that will disappear within seconds? It's not about the product itself, experts say, it's about the habits such spending instills. Walking to the store to buy a candy bar requires planning and likely involves cash. Once cash is gone, it's gone, and children can understand that. Buying an item while playing a game is instantaneous. Meanwhile, the dollar amounts add up without kids noticing how light the piggy bank is getting.

"The danger with these purchases is that money turns magical," said Nathan Dungan, founder and president of financial-education firm Share Save Spend. "Children's brains can't process these virtual transactions because it's not tangible to them."

Ms. O'Connell, who works for an actuarial consulting firm in Atlanta, asked her son, Steven Flaxman, about his $1,500 Xbox bill. Steven told her that since the transactions were in virtual coins, not dollars, he didn't realize they were tied to his mom's purse.

"At first I was super angry with him. I was like, 'How could you not understand this?' But the coins look so fake and playful that you don't realize it's coming out of someone's bank account. He didn't get it. I took most of the blame myself because I didn't notice it for so long," she said.

She said Microsoft refunded her for 90 days' worth of charges, about $450, and that she has since removed her debit card from his Xbox account.

A Microsoft spokeswoman said Xbox has family settings that allow parents to approve and limit purchases and to receive alerts when purchases are made.

Now, Ms. O'Connell pays Steven his weekly $20 allowance in gift cards, which he spends almost entirely on digital goods. "If he wants to spend it on that, I can't complain because it's money he's earned," she said.

Steven said it "feels a little weird" to spend real money on virtual items but that buying cool stuff gives him something to talk about with his friends and improves his game play.

In-game spending is starting to get more attention from lawmakers, regulators and plaintiff's attorneys. Amazon.com Inc. in 2017 agreed to refund $70 million to customers who were charged for unauthorized in-app purchases made by a child, as part of a settlement with the Federal Trade Commission.

Lawyers last month filed suit in U.S. District Court for the Northern District of California against "Fortnite" maker Epic Games Inc. on behalf of an anonymous minor and his mother, claiming that the game doesn't include a way for parents to make informed decisions about minors' in-game purchases or to track players' spending history. The suit is seeking class-action certification.

" Fortnite" has made $3.9 billion in revenue since its July 2017 launch, with almost all of it coming from microtransactions, estimates Nielsen's SuperData. Players can buy outfits (aka "skins"), and even dances and other moves known as "emotes."

Epic Games declined to comment but pointed to its parental control guidelines, which allow parents to create a PIN to restrict purchases in the Epic Games Store.

In May, Sen. Josh Hawley (R., Mo.) proposed legislation to prohibit makers of minor-oriented videogames from selling "loot boxes" -- random collections of items -- and virtual goods that give players an advantage. He likened the practice to gambling. The FTC plans to discuss whether loot boxes raise consumer-protection concerns during a workshop in August.

Chicago doctor Jyoti Patel recently discovered that one of her teenage sons had spent $5 on gems in "Clash Royale" after seeing a charge on her credit card. The amount was small but she worried it would get out of control so she had a stern talk with him and his twin brother.

"It's this imaginary world where money goes and I don't think they understand what it means," she said.

The twins, Akshay and Kiran Garapati, 14, say they get it now. Both have spent iTunes gift cards on items in the popular online multiplayer game "Fortnite," and a group of about 30 friends from school have been playing against each other in "Clash Royale," where they said there is pressure to buy gems to advance more quickly in the game.

As both a father and the chief architect of financial software developer Intuit Inc., Alex Balazs says he has given lots of thought to virtual spending. When it comes to teaching his 14-year-old, Gabriel, about financial responsibility, he said his philosophy is to show his son that every choice has a consequence.

"We try to create scenarios where he has choices to make and if he chooses to spend in a game it has to be at the expense of something else, " he said.

More than a year ago, when Mr. Balazs and his wife were planning to see the movie "Guardians of the Galaxy Vol. 2," his son was weighing whether or not to join them. His options were the movie ticket or a "Fortnite" skin. Gabriel chose the movie.

"I really did want to watch that movie with my parents and I didn't think it was worth sacrificing that family time for something in a game, " Gabriel said.

How to Manage Your Child's Virtual Spending

Define your values. Nathan Dungan of Share Save Spend advises parents to define their values around money and communicate them clearly to children. When kids say all their friends are paying to level up or buying cool skins and weapons, parents can reply, "Well, these are the values of our family." Unlike that pair of new sneakers your kid might covet, virtual goods are more instant -- and never-ending. "Having rules in place ahead of time will save you pain," Mr. Dungan said.

Control the money. "You are the bank," said Joost van Dreunen, a co-founder of Nielsen's SuperData who also teaches a course on videogame economics at NYU. "At all times you must be in charge of the credit card."

Gaming consoles and mobile devices all have different settings to restrict spending. The Xbox One console, for example, allows parents to require a passkey before any purchase can be completed.

PlayStation Network suggests parents create a child account where they can establish monthly spending limits.

The Screen Time function on the iPhone, iPad and iPod Touch can be used to prevent unauthorized App Store purchases. Parents can disable in-app purchases altogether or require children to request to make any downloads or in-app purchases.

Apps and games in the family section of Google Play automatically request password authentication before a purchase is made on Android devices. Google also allows parents to turn on password authentication outside of the family section.

Balance the spending. Parents who allow their children to make in-game purchases should also maintain other goals around money, such as saving or donating a portion of their allowance, experts say.

Write to Julie Jargon at julie.jargon@wsj.com

(END) Dow Jones Newswires

July 16, 2019 11:44 ET (15:44 GMT)

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