What's the Difference Between Prepaid Card Accounts and IOU Accounts?

“Why can’t we get the money out of my daughter’s savings account? It seems to have disappeared!”

We get that panicked question from time to time.

When money mysteriously “goes missing” in FamZoo, an IOU account is almost always the culprit.

In a typical scenario, the parent inadvertently sets up an IOU account for savings and allocates a portion of allowance or chore payments to it. Later down the road, the parent is dismayed to find that no real money has accumulated in the account. Instead, an unanticipated debt has accumulated that must be paid off to the child.

To understand how this happens, let’s back up a bit. Think of the classic money jar system that parents often use with kids for separating spending, saving, and giving.

In FamZoo, there are two types of “jars” (i.e., accounts)

  1. Prepaid card accounts — A prepaid card account is like a jar stuffed with real money. It shows up in the FamZoo Accounts listing after you order a FamZoo card and activate it online. You’ll see [***NNNN] next to its name, where NNNN matches the last four digits of the 16 digit number embossed on the face of the card.
  2. IOU accounts — An IOU account is like a jar that just holds little hand-written I-Owe-You notes instead of real money. Each note represents a promise to pay in the future. You can create IOU accounts instantly on the Bank tab, and you’ll see [IOU] displayed next to their names.

The bottom line: prepaid card accounts hold real money, IOU accounts don’t.

Some people mix and match the two types of accounts. The picture above shows what happens when a $3 allowance is split evenly between a prepaid card account and two IOU accounts.

Note that only one dollar flows from the parent’s FamZoo funding card to the child’s spending card in this case. The other two dollars of allowance are simply recorded as credit entries in the IOU accounts with no actual money changing hands.

If you choose to mix and match prepaid and IOU accounts like this, you’ll need to be aware of the special rules for transferring amounts between the two account types. See here for how IOUs are converted to cash and vice versa during transfers.

If you’d rather have real money held in all three accounts, then you’ll need prepaid cards for saving and giving as well instead of IOU accounts. You can order additional cards any time by following the steps here.

Pro Tip 1: Keep the non-spending cards in your desk drawer so the kids aren’t running around with them (and losing them or using them for random splurges).

Pro Tip 2: You can activate additional cards immediately after you order them so they show up in FamZoo right away. You don’t have to wait the 7 to 10 business days for them to arrive. If you put money on the cards prior to arrival, you can lock them to keep the funds secure.

At this point, you might be thinking: “IOU accounts just sound confusing. Why do parents use them anyway?”

Here are a few of the most popular reasons:

  • To track earnings and spending for a youngster who isn’t quite ready for a card yet.
  • To track money you intend to pay out later to your kid — often in one lump sum at a future milestone (like when your grown child opens up a checking, savings, or brokerage account upon graduation from FamZoo).
  • To keep a running tally of reviewable chore rewards accumulating for the next pay day. Upon approval, the balance can be swept to a card account and made available for spending.
  • To record the outstanding balance of a loan made to your kid for a big purchase like a computer or a phone or a used car. In this case, the balance starts negative and heads toward zero with each loan payment.

Over the years, families have come up with all kinds of clever ways to use IOU accounts. One of my favorites is the Money-You-Could-Have-Earned account for tracking missed chore opportunities.

Have your own clever IOU account scenario? Share it with us!

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