After a background with Fortune 100 companies and in Private Equity, Ken Damato developed the idea for DoughMain. DoughMain is created by parents for families and holds the goal of teaching financial responsibility. With DoughMain's kid-friendly platform, Ken offers a great tool for families to use.
Ken took some time to chat with us about spending, teaching kids good budgeting habits and the benefits of prepaid cards.
Why is it so important to teach kids financial responsibility early on?
Children as young as 2 or 3 can learn about money. If young children have the opportunity to handle their own money, they begin to understand they have a limited amount of it, and they'll have to determine how to spend it and how to save it. It requires some analytical thinking. Through handling their money, children learn to give, to budget, to save, to delay gratification and even make some money mistakes, ideally within a safe environment such as DoughMain, which enables teachable moments with parents.
How important are allowances for kids?
Whether you believe in allowances and/or chores, parents can teach kids about responsibility and contributing to the household. By connecting chores to a reward system such as an allowance, parents can teach the fundamentals of money management through real-world experiences. For most kids, household chores serve as their first "job" with the allowance as their "salary" - a great opportunity to introduce the concept of work and income.
Kids rarely handle money today or see their parents handle money. Money matters are no longer modeled at the local store, the bank or while paying bills. When children earn their own money through allowances, they have the opportunity to manage their funds. They may make mistakes, but those can be learning opportunities, and ultimately, children learn best through doing and not just discussing processes.
Enabling kids to earn pocket money through small jobs enables them to make choices, budget, save for items and understand delayed gratification - all while contributing to the family unit, understanding responsibility and commitments, and gaining confidence.
How does early financial responsibility impact later life and financial decisions?
Money is a complicated, emotional and fundamental necessity in our lives. Money provides much opportunity and creates many hardships, and the difference between the two is often driven not by how much money we have, but how we manage our finances.
Financial literacy has many facets: money as a limited resource, consequences of spending habits, identifying wants versus needs, the necessity of saving and the value of delayed gratification. Like with any life skill, the foundation we build as children and teens sets the direction for our futures. If an individual has learned how to budget and control spending as a teen, that individual will be better prepared to take the next steps in young adult life regarding paying college expenses, buying a car, managing a credit card, etc. Ultimately, as the child matures and learns about money management, we want to help bridge the "knowing what to do" versus "doing the right thing" gap before there are life-changing consequences.
What do you think of the debt accumulation and over-spending we've seen over the past few decades? Do you think it will continue, or are you seeing some changes in spending trends?
Little doubt exists that the over-spending and debt accumulation of the past 10 to 20 years has prevented individuals from attaining the American Dream of financial well-being. Recent polls have shown that overspending and debt issues continue to plague too many Americans:
- 34% of households carry a credit card balance from month to month
- One in nine people aged 18-24 use 40% of their income to pay off debt
- 43% of Americans have less than $10,000 saved for their retirement
Even when the spending is on something important for an individual's future, such as a college education, the debt accumulation trend continues. Unfortunately for today's youth and young adults, the cost of a college education has risen dramatically in the past 30 years with the result that two out of three college students will graduate with an average of $20,000 in loan debt. In 2007, the total student loan debt crossed the one trillion dollar mark and continues to increase.
A growing state-sponsored initiative to teach financial literacy in the K-12 school curriculum is one bright spot on the horizon along with increased financial literacy requirements for high school. Just this week, a bipartisan resolution, House Resolution 721, was introduced at the U.S. House of Representatives to encourage collaboration between public and private sectors to promote financial literacy for students. Trends also indicate that millennials are saving more than previous generations, having watched their parents struggle during the Great Recession. We believe that the educational groundwork is being laid for a reversal in spending trends; however, we have a long way to go as a country.
How can parents help their kids decide to buy or not to buy?
Have your child keep a wish list. If there is the possibility of an impulsive purchase, or one that you'd like to avoid, refer back to the list. Ask a few probing questions:
- Do you really need this?
- Would you be willing to wait a week to purchase it? (Cooling-down period)
- Would you prefer this over "x" on the list? You've been saving a long time for "x," and this will prolong it further.
Window shopping also provides an opportunity to discuss all of the consumer products that we'd love to have while also helping your child realize needs versus wants.
Be prepared to let your child make a mistake as a learning experience, provided it will not create a horrible setback.
How important is working "giving" into a budget?
One can argue that this is a philosophical question, and our philosophy is that it's very important for the short- and long-term betterment of society to encourage philanthropic giving. The Harvard Business School examined the benefits of charitable donations in their paper "Feeling Good about Giving: The Benefits (and Costs) of Self-Interested Charitable Behavior" in 2009.
They explored how charitable behavior can lead to benefits of the giver. Knowing that you donated time or money to a cause gives inner satisfaction and a feeling of well-being. Charitable causes also keep us apprised of social injustices and keep us informed on topics important and relevant to us. Donating and volunteering for those less fortunate also provide social benefits including increasing social connections.
Giving doesn't have to be to a charitable cause; it could simply be a present for a friend or family member. Giving promotes social connection and cooperation, and per the HBS paper, the giver often gets back in return, although not necessarily from the same person. It's a circle affect. And the best reason to include giving in a budget is to be sure the funds are allocated and ultimately given.
Please tell us the benefits of prepaid cash cards for kids.
Prepaid cards provide teens with financial independence and a "cool" factor while maintaining parental control. Teens can't spend more than they have, and thus they have to track their spending to budget for upcoming expenditures.
Prepaid cards are convenient, widely acceptable and safer than cash, and they cannot be overdrawn. They can be used anywhere credit or debit cards are, and can be used for travel, errands or online.
Parents and teens can track and monitor spending, which opens conversations on the importance of each financial decision and its future impacts. They provide a safe environment for teens to learn how to spend smartly, to budget so money doesn't run out, and to learn about fees and how smart usage can avoid that unnecessary expense.
Where do you see DoughMain's future?
As each month passes and adoption rates continue to grow, we see millions of parents and children using out platform to learn about money and how to prepare for financially responsible lives. Our vision is that DoughMain will have a positive impact on our users and help reverse some of the negative personal money management trends we discussed earlier.