Managing money isn’t easy. Between regular monthly expenses and personal purchases, it can be difficult to set aside enough money each month to save for long-term goals, like buying a house or retiring.
That doesn’t need to be the case. Fintech companies have already helped small businesses acquire the capital necessary to expand. Now, there’s growing evidence they’ll also help the average consumer by making it easier to invest and save money.
Granted, a person must make the conscious choice to use these services if they are to reap the benefits. That said, the examples listed here serve as further proof that the fintech revolution will have an overall positive impact on the average person’s finances. Here’s how:
Making Investing Easier
Investing in the stock market does carry some degree of risk. There’s always the possibility that an investment will lose value, no matter how carefully you research your options beforehand. Still, over the long term, the stock market is a good place to put extra funds. Even despite multiple recessions over the course of the 20th century, the Standard & Poor’s 500 index has produced average annualized total returns of 9.8% for the past 90 years.
That doesn’t mean it’s always been easy for consumers to take advantage of these benefits. Traditional brokerage firms typically charge broker fees for every transaction. These can be too high for people who are just getting started with building an investment portfolio. Additionally, the process of setting up an account and purchasing stock may seem too complex for some people to take the first steps.
Fintech is changing that. Apps like Robinhood allow users to buy and sell stock and ETFs without charging broker fees. Because the app is easy to use and free for basic trading, it may be more appealing to consumers—particularly beginning investors—than traditional brokerage firms.
Other products, like Acorns, make investing even simpler by allowing users to take a passive approach. This app rounds up to the nearest dollar when a user makes a purchase with a linked debit card or account. The money is then invested in a diversified portfolio. Because the app invests the remainder automatically, users don’t have to research investments or make trades on their own. The work of investing money becomes much easier when the app does almost everything for you.
Helping Users Save
Again, while investing in the stock market absolutely can help improve a person’s finances, it isn’t without some degree of risk. That’s why certain consumers might be more interested in services that give them a simpler way to put money aside in a savings account.
Luckily, there are fintech products that offer these features, too. Apps like Digit and Chime automate many of the steps involved in saving money so users don’t have to actively make the choice to set aside funds.
For example, Digit works by prompting users to list what purchases or goals they are saving for. Digit’s algorithms analyze the user’s spending habits and determine when the user can afford to transfer money from their checking account to the Digit savings account. The algorithms are also able to figure out the appropriate amount of money that should be transferred for the user to reach their financial goals.
Products like these can be ideal for people who may lack the time or discipline needed to consciously set aside money for the future. When an app automates the process, the decision to save or spend is made for you.
Striking a Balance
Some consumers may want to save money in both ways: by investing in potentially lucrative markets while also setting aside funds in a savings account.
Once again, fintech is making this much easier than it used to be. Services like Plum offer both features in one product. It uses the round-up method of Acorns, but instead of investing the funds in the stock market or ETFs, the app places the money in a savings account.
However, it also gives users the option to invest and can assist in the research process. With Plum, users have a bit more control over the types of investments they want to make. For instance, a user could decide they want their funds invested in tech companies. Plum will take this information and choose investments accordingly. Or, a user may want to be certain they are investing in ethical organizations. Plum also gives this option. Such features may appeal to users who are eager to invest, but don’t know how to select the companies they wish to target.
Because these products have not been available for a long period of time, it’s too early to truly assess the impact they will have on users’ personal finances in the long run. That said, it’s clear they simplify the process. That may be all that’s necessary to help the average person set aside enough money and make investments for a stable financial future.