Nothing in the history of money has been more diabolically
efficient at getting us to spend than a smartphone. It’s an
instant-gratification machine for music, games, takeout and catching a ride,
anywhere, all the time. Now, however, your phone can prevent you from burning a
hole in your wallet. A growing set of apps can help with the self-control that
it takes to save money for the future. Apps like Acorns, Digit.co, Level
Money and Mint track all the ways you spend to tell you in one glance
how to stay on budget. Some even squirrel away extra cash before you blow it. Apps
are key to getting millennials back on financial track. The generation
America most likes fretting about—adults under 35—has a savings rate of
negative 1.9%, says Moody’s Analytics chief economist Mark Zandi.
But phones are ideal for what behavioral economists, who
study the psychology of money, call a nudge: always within reach and can make a
game out of guiding us to good choices. The first time Digit got me to save a
little, it texted me high-five with an animated Scrooge McDuck. Traditional
banks have apps, but most stink at helping young savers (who are less
profitable for banks) track their habits, or set aside cash when it makes
sense. Classic savings techniques, like scheduled transfers, are less effective
for temp or app-economy workers, whose income arrives in fits and starts.
Using this new type of saving app requires a leap of faith.
You have to provide logins to your bank accounts. It’s important to watch for
red flags on privacy security. And while there’s a lot of junk out there, the
best are worthwhile. The right software can look through all your financial
data to spot trends that are hard to recognize on your own. Savings apps divide
the world roughly into two kinds of people: those who need to hide savings away
from themselves to keep it safe, and those who just need more information to
stick to a budget.
Take My Money,
Please!
Sure, you can resist the temptation to splurge on lunch
today. But what about tomorrow? That’s why some apps, including SmartyPig and SavedPlus,
want to help take willpower out of the equation. I found Digit to be
the simplest—and the most ambitious. It operates like a benevolent pickpocket,
yanking money out of your hands before you can spend it, then keeping it safe
on your behalf.
When you give Digit the login to your checking account, it
watches for extra money in your budget. Every few days, it hides away up to $50
in a savings account assigned to you. It is free, and Digit’s virtual piggy
bank is FDIC-insured. Digit’s magic is how much and how often it withdraws
based on your actual, and possibly chaotic, life. Its algorithms weigh a number
of factors, including bills coming due, expected income, and whether you’ve
been spending on a tear. Obviously, taking out more than you can afford could
be disastrous. Digit is so confident that won’t happen that it offers to pay
overdraft fees if it does.
Like most millennials, Digits communicates with you mostly
via text message. Over two weeks, it automatically pulled about $26 from my
account, and would have taken more if I’d told it to. I wish there was a
mechanism to tell Digit you’re, say, saving $200 for a new phone this October.
But simply texting “save more” does nudge it to get more aggressive.
Digit is for short-term saving, because you give up the
ability to earn interest—the company keeps that for itself, hence the “free”
service. But you can text it to ask for your money any time, and it usually
arrives the next day.
If you want help making your savings grow, another
robo-banker called Acorns siphons off savings, then invests the money on your
behalf. Acorns takes your spare change—rounding up to the nearest dollar on the
purchases you make with credit and checking accounts. You can also tell Acorns
to take a designated amount daily, weekly or monthly. Then it helps you pick a
suitable investment portfolio, like you can get from some more advanced
robo-advisers. The app asks questions, then assigns money to one of five
portfolios that include index funds from companies like Pimco, Vanguard and
iShares.
Are these robot bankers trustworthy? Both are above board
about what they’re doing with your money. But you have to trust them with the
keys to your accounts, and sensitive info about your financial habits, just
like with any bank. Digit says it anonymizes personal information and encrypts
login data. Still, keep close tabs on your phone, because access to your
account is just a text message away. Like Digit, Acorns encrypts customer data
and promises it won’t ever sell personal information. It also locks down the
app with a fingerprint or PIN login.
Just Give It to Me
Straight
For some of us, saving money is more about awareness than
will power. Looking at the cash in my wallet isn’t very effective; the real
story is tied up somewhere in a mishmash of credit cards, upcoming bills and
401(k)s. One of the most-used apps on my phone is Mint, a personal finance
service that’s been around since 2006. You give Mint logins for your bank,
credit-card and investment accounts, and it creates a 30,000-foot view of your
financial life. I’m obsessive about checking it to see when bills and checks
post, and game myself into setting aside money for big purchases.
A newer app called Level Money goes a long way
toward simplifying the most important question in the moment: How much money
can I spend? Level looks at all of the same data as Mint, then boils it down: A
big circle on your phone or smartwatch says how much money you can spend today,
this week, or this month—and still stay on track with bills and savings goals.
You may have doubts about trusting these companies with so
much personal data. Mint and Level know a lot, but they don’t have the power to
move your money. Still, you need a good account password, and you need to lock
your phone. Behind the scenes, Level and Mint both use a system developed by
Mint’s owner Intuit to pull transaction data from banks. They store
your encrypted username and password. They don't store your name or Social
Security number. Neither service has been hacked, and Mint says the customer
data it stores wouldn’t be useful for identity theft.
Both Mint and Level are free—which is usually a sign that
they’re making money off us. Mint runs ads targeted to people with certain
financial profiles, but doesn’t sell their data. Level, recently bought by
Capital One Bank, doesn’t have ads. Traditional banks should be wary. As these
services grow, they could become the lifeline to what matters most in our
financial lives—the data and intelligence to spend money wisely. Even today,
they beat banks at helping young people start saving.
Click
here to access the full article on The Wall Street Journal.