A survey of more than 1,000 U.S. adults aged over 18, conducted by Propeller Insights on behalf of Varo Money, found that that 85 percent of American adults sometimes feel stressed out about money, and a 30 percent feel stressed out about money constantly. Moreover, than two-thirds of U.S. citizens (69 percent) report having had to dip into their savings to make it to the next payday at least once in the past two years and 55 percent of millennials said they have dipped into their savings in the past few months.
To address this, mobile banking startup Varo Money, Inc. is using mobile technology and intuitive design to change the future of banking. This includes SMS notifications, where customers can receive notifications based on aggregated financial activity across all linked accounts.
To understand more about changes with mobile banking, Digital Journal spoke with Colin Walsh, Co-Founder and CEO of Varo.
Digital Journal: How many Americans are actively saving for the future these days?
Colin Walsh: This is a tricky answer—while Americans are doing a somewhat OK job of saving money automatically (50 percent of millennials are doing it), the big problem is that they are not holding onto those savings. Almost three-quarters of millennials (71 percent) do not have a three-month emergency savings fund, according to a recent survey conducted by Propeller Insights on behalf of Varo Money.
DJ: What else did the survey show?
Walsh: Some more takeaways from our survey found fully half (50 percent) of millennials automatically save a percentage of each paycheck. Another 39 percent are looking for a higher-paying job to facilitate saving. However, two-thirds (66 percent) of American adults do not have a three-month emergency fund, and almost half (46 percent) don’t have any savings set aside for unexpected expenses. Certain events would throw these Americans into financial chaos, particularly job loss (36 percent), personal injury (35 percent), car trouble (33 percent), and even a pet care emergency (18 percent). Additionally, about 1 in 5 Americans (19 percent) are living paycheck to paycheck.
DJ: Is there a generational divide, e.g. between millennials and older adults?
Walsh:Data from the Federal Reserve shows retirement savings patterns do vary by age, which is not surprising. For example, nearly half people ages 18 to 29 have no retirement savings or pension whereas over three-fourths of non-retirees age 30 or older do have some savings, according to the Fed.
There are a variety of reasons why young people may not have any retirement savings—low earnings, no access to an employer-sponsored savings plan, and student loan debt could all be contributing factors. In addition to these external factors, we wanted to know more about millennials’ behavior and attitudes when it comes to money management.
According to our own proprietary survey research of millennials (ages 22-36), we found that the vast majority are hands-off with their money management—80% don’t make spreadsheets; 50% don’t budget in advance for their spending, and 35% don’t review last month’s spending. Additionally most (80%) manage their money by just checking their bank balance on their bank’s app or website on a daily or weekly basis.
DJ: What can be done to encourage people to save more?
Walsh:Behavioral economics has looked closely at the question of how to get people to save more and research shows that simple things like automatically enrolling people into retirement savings—and making opt-out the default—can make a marked difference on savings rates. Technology is also playing a big role in helping people save more with digital nudges—many of these things are things on our roadmap.
DJ: What level of saving does Varo Money recommend?
Walsh:At Varo we recommend that people strive to save between 10 percent and 20 percent of their income, this could be divided between saving in a cash savings account and—if they have access to it—tax-advantaged retirement accounts. Building an emergency fund of liquid cash savings might take priority at first, holding between 3-12 months’ worth of basic expenses.
Our recommendations are drawn from the work in The Index Card: Why Personal Finance Doesn’t Have to be Complicated by Harold Pollack and Helaine Olen and recommendations from CFSI.
DJ: How does your new savings SMS alert work?
Walsh:Customers can receive push notifications based on aggregated financial activity across all linked accounts that let them know how they’re doing on income, saving, and if they are at risk of overspending so they can stay on top of their money effortlessly. The SMS feature makes it easier for customers to track their overall spending and keep pace as to how much they are really spending.
DJ: What other innovations are you working on?
Walsh:Our current product is an all-mobile bank account built with best-in-class technology to help people get ahead financially. In addition to banking, saving, and lending products, Varo offers customers a way to view all financial accounts—at Varo and elsewhere—in one place, and customizable tracking and goals to help manage spending and income.
