Technology Could Change Personal Finance, But Only if We Get Better at Using It - Barron's

Photograph by Luke Porter

You don’t have to look very hard to see a grim picture of personal finance trends in America. From rising credit card and student loan debt to a severe lack of emergency funds to households not saving enough to reach their retirement goals, most Americans are facing steep financial headwinds.

But some technological advancements may help change this. For example, several round-up apps like Acorns, Digit, and Qaptial essentially act as digital piggy banks. If you were to make a purchase for $19.60, the app would round the total up to $20, placing the additional 40 cents in a savings account. Having this silent savings advisor “monitor” your daily purchases is an automatic way to start saving money or paying down debt.

Additionally, artificial intelligence and machine learning are being used to assist customers in making wiser financial decisions. Wallet.AI is an app that analyzes your spending habits so you can make better financial choices, such as cutting back on how often you go out to eat or setting a budget for online shopping. Plum is another platform that analyzes your spending to determine how much money you can realistically place in a savings account each paycheck.

AI-oriented platforms can also make other types of predictions. Trade-Ideas, for example, relies on trading data to assist people in making the right investment decisions without having to speak to a financial advisor. Traditional banking institutions like Bank of America are turning to chatbots and digital assistants to help customers with basic services, like sending and receiving money and unlocking debit cards, as well as more complex features, like fraud protection and budget planning.

Voice technology is already being used by banks like JPMorgan , Capital One, Ally Bank, Barclays , Santander, and the Royal Bank of Canada , usually to help customers identify recent activity and make minor e-commerce transactions. However, between an increase in security and an increase in working with AI, people will become more comfortable using their voice to authenticate their identity, apply for a loan, pay bills or taxes, or ask for personalized financial advice directly from their smart device.

As financial technology continues to advance, it will become easier and faster to save and invest money in driving passive income. This could help more people pay off debt, build an emergency fund, or set aside money for retirement. Additionally, more will be able to access 24/7 customer support, and advancements in cybersecurity will keep sensitive data safer.

That’s not to say everything is coming up roses, of course. While digital tools and 24/7 availability are intended to increase access for everyone, financial inclusion is sometimes still more theoretical than practical. Mastercard found that while nearly 90% of the developing world has access to mobile networks, use of online services isn’t a given. Nearly one in five accounts is inactive; cultural considerations, risk aversion, and a lack of trust all play a role. In the U.S., these tend to be issues that particularly plague older Americans and customers in rural areas.

For lower-income Americans, that’s a major complication. A lack of access to mainstream personal finance and banking services prevents people from gaining wealth—the exact opposite of what on-the-go banking was intended to do. To shrink the gap between Americans without banking accounts or credit cards and everyone else, financial institutions need to invest in educating the younger, digitally savvy generation to adopt these tools to reach their ultimate goals and spread wealth in their communities.

And what about the workers whose jobs are impacted by all this automation? With 1.3 million jobs in the finance sector expected to disappear by 2029, this could be reason for panic. But, like in other industries, the loss of these jobs won’t decimate finance—instead, people with a penchant for numbers and long-term planning will be funneled into higher-level work, handling tasks AI can’t be entrusted with.

Technology has introduced a sea change in personal finance. While it hasn’t yet democratized banking and finance the way it’s promised, it’s well on its way—and this progress is exactly what debt-ridden and money-anxious Americans need.

John Rampton is an entrepreneur, investor, and startup enthusiast. He is founder of the calendar productivity tool Calendar.

http://bit.ly/2WS7AhO