Americans have a pressing problem: Nobody is saving money. Consider this: One out of every three people has a grand total of zero dollars saved, and 63 percent of Americans do not have enough money saved to cover an unexpected $500 expense. That’s bad enough, but these folks are also going to live a lot longer than prior generations — all these people drinking kombucha and eating kale chips aren’t saving anywhere near enough to pay for the long, long lives they have ahead of them.
So, what should we do? It’s a good question without many good answers.
Should we put more pressure on employers to “nudge” their employees into retirement accounts? It hasn’t worked very well to date, as 64 percent of Millennials (18 to 34 years old) don’t even have a retirement account. Should we pursue more financial literacy programs? After years of financial literacy policies, two thirds of Americans still can’t pass a basic financial literacy test. What about new legislation to mandate saving (like in Australia)? Seems unlikely, as American politicians appear to actively promote consumption instead of saving — the former is trumpeted as a key driver of economic growth! (Remember George W. Bush, after 9/11, telling people who wanted to give something of themselves to help the cause that they should simply go and spend their money on stuff? That actually happened!) And consumption is only getting easier through streamlined “one-click”-style consumer innovations. (I’ve yet to see a one-click saving button for my fridge.) It’s all very depressing.
Thank goodness for robots!
I personally see something powerful in “robos” — though perhaps not in the way you’d expect. More precisely, I do not think robo-advisers will help solve the saving problem, but I do believe a new breed of so-called robo-savers will be critical. Before I get into that issue, let me first define some terms:
Robots — “robos” — perform tasks in an automated and at times artificially intelligent manner. The things robos do are generally hard for people to do themselves, and the idea behind any robo is to provide an effective product or service with minimal human interaction. In the world of saving and investment, there are two broad types of robos:
• Robo-advisers automate portfolio management and investment advice functions. Some will tailor products to reflect a saver’s idiosyncratic characteristics and evolve over time as these traits change.
• Robo-savers — which, you now know, are a thing — help people save money in an automated and intelligent manner. They use creative behavioral tricks and tailored features to generate a maximum amount of savings without too much pain for the individual.
Since this may be the first time most people are hearing of robo-savers, I’ll give a few examples of companies doing this: Acorns takes the spare change from your transactions and automatically invests it in the stock market; Digit monitors your checking account, making smart, automatic withdrawals that you hardly notice and depositing them in a saving account; EarnSmart intelligently moves spare change into objective-oriented saving products; Qapital also provides smart auto-withdrawals for objective-oriented saving; and Tip Yourself offers a virtual savings jar, which is as close to so-called impulse saving as I’ve seen. And there are many more robo-savers being built.
Although most of the companies listed above may not be known to readers yet, I think some of these robo-savers will grow to be many times more important to the world of finance and asset management than any of the current robo-advisers. In short, the big saving crisis facing America needs robos, but it won’t be solved by robo-advisers; it will be solved by robo-savers.
In general, robo-advisers are used by the small percentage of people who are already financial optimizers. These customers are looking for cheap tools to solve something they already recognize to be a problem. Sure, it’s nice to get help building a portfolio or investing more intelligently in an index fund, but it’s not a massive value-add. However, helping a person to start saving who has never saved before is a huge value-add.
The real innovation coming from the robo world is not in the creation of cheap or easy-to-use retail investment products — it’s in the creation of new retail investors!
We’ve got this monumental saving problem, and many of the solutions that people are pursuing are not delivering results. In my view the answer to the retirement crisis is going to come from creative robo-savers that will use behavioral tricks — delivered with a dose of automation and even artificial intelligence — to get people to set aside money for future goals. And that could be game changing.
(Full disclosure: I’m also personally working on a robo-saver that’s not listed in this article. I left it off because I think plugging my own projects here would be too self-serving, but readers should be aware that I might have a bias.)
