In game economies need several things to be balanced. Balancing them is not only something that needs working out before a game starts, but also changing as the game goes on, and sometimes the mechanisms for the change need building in from the start as well. Done well it can add a lot of depth to your world. It can increase pressure on players and give them more meaningful feeling decisions to make. If money is done badly it ends up making new players feel they can’t compete or your economic system just doesn’t apply.
You need somewhere for the money to come from. This helps to decide who gets how much money and how. Whether it’s something that can be gained in character or whether it turns up in your character pack. If you’re putting money in in game choose what behaviours you want to reward. Do you want your heroes to spend a huge amount of time looting bodies after skirmishes? It not only holds your monster crew up, it also means that you end up with your nobility rooting through corpses or being penniless. The second kind of works for a while. It depends what you want.
You need somewhere for the money to go. Without money sinks the amount of cash in circulation will just keep going up. Working out how you’re getting money out of your game is more important than knowing how you’re putting it in. It can be used to create the world beyond the field you’re in. Or to enhance the world the players are in. Players at large fest games run bars, restaurants and a range of other businesses. They tend to take a disproportionately large amount of cash and the people running them get very rich. This is often a symptom that there is too much money coming into the game and not enough ways for players to spend it on keeping the game world running. Money is a reward with far less meaning that it could have.
You need to make sure that you’re not giving your players a chance to have a bad time. You can’t actually starve players. Most of them won’t find roleplaying being hungry and thirsty a lot of fun if it relies on them being actually hungry. A large number won’t find it much fun at all. Who goes to an event to pretend to be a starving peasant? If you put your players in a place where they can only get ic food with ic money they’ll eat ooc food if possible and then your mechanism is making people drop out of character to go and eat and in my mind that damages your game.
Money can be used to build in politics. Carefully balancing how much money the players have with what they can choose to spend it on means that they have to choose whether to repair the aqueduct for the drought sticken people from Westland or to build a monument to the gods of the Northland and then they get repercussions dependent on the promises they’ve made and the actions they’ve taken. It makes money meaningful and adds to the in game pressure and tension on players.
Spending money on upgrades is not without its problems. It puts new players and small groups at a massive disadvantage unless it’s handled very carefully. Making sure that players can access sources of money can help them to become relevant to the game far more quickly. If they have a resource that other players want access to they’re more likely to be involved in decisions and to get a higher level or interaction. It helps create a supportive culture for new players and can increase the number of new players who stay within your game.