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As a parent or older sibling or babysitter its your job to watch the kid while they are on the computer and to make sure they don't do stuff like that.
Or just make their their own account and what ever they do on it, well its their own fault, well theirs and who ever is suppose to be looking after them because well they were not watching them very carefully now are they if they can download cheats and stuff like that.
I've already done this with three of my own children. I know how this works. The problem is other people's children/family especially during gatherings.
Tell the others that they do not have permission to use your family's steam libraries.
Whenever someone with children visits you, unplug your computer and tell everybody that it's broken. All your problems solved right there, easy.
Then create a Guest Steam Account and Family share games with that account.
You don't need another PC to do that. Either log out and login using the client.
Or if you'd rather not do that create a windows user account for your guests. Once you've setup Windows how you want for the local guest user account it's time for Steam.
What I do is install it on a different drive but you can install it on a different partition or even just modifiy the default Steam installation path to something else.
Default being
C:\Program Files (x86)\Steam
Example options
D:\Games\Steam
C:\SteamGuest\Steam
Once installed make sure the shortcut on the desktop links to the correct Steam location. You don't want it linking to your main account.
Create a new Steam Account for your guests and have it save login details
To switch accounts close Steam and sign out of Windows. Sign into others windows account and load Steam. This helps keep guests away from certain things and eliminates need to use Authenticator to login each time.
I don't allow them to use my computer online so they can't play any game that could result in a ban, for me. Simple for me because I just unplug my powerline adapter. Sure there are other ways to block internet access depending on your connection setup.
A lot of us are pointing out that you should be with a kid while they are on your system and that the majority of what you want can already be done and that some of the stuff that you want will just not possible.
Are you all imagining a 5 year old left unattended rather than a 13 year old that will likely break something?
Just create a second account and family share games. Slighty different to consoles when they have different profiles per user but the basis is similar. A Guest/2nd account can even earn its own achievements just like different users on a console.
Your guest mode method would open the door, more like blast it off, for users to exploit it for cheating under a' guest' rather than in normal mode. Even if the guest mode could get itsvown ban that would allow every account the ability to get banned twice. Once on main user and a second on the guest mode before they need a new account and game.
That's why I clarified further in the comments that there would be little/no multiplayer allowed. I don't want people cheating, I just want an easy way to lock down Steam so a cousin/friend's kid/whoever couldn't do anything to my account and with family sharing they can still get you VAC'd .
I think that they can get you VAC'd just by installing stuff into your computer and you playing on a secured server afterwards without being aware what you have into your PC.
Unplugging the computer still seems to be the safest solution if you ask me.
Nope 5 year olds generally are not smart enough to get to websites with cheats on them. A 13 year old is a bit smarter and more likely to download a cheat that their friend told them was awesome. 13 year olds need to be watched like a hawk when they are on the computer. I've seen some very disturbing things in all my years and anyone under the age of 18 should be watched for what they are doing on a computer. If I had a kid, the computer would be in the front room, and they would only be allowed on it if I am around to keep watch of what they are doing and who they are talking to.
They would also have their own account, and if it gets banned its their own fault, but if they are being watched, there is almost no chance of them getting banned.
And NEVER let them plug in something without you being there to check it out first, for all you know, they downloaded a cheat somewhere else, put it on a thumb drive and brought it over.