The Fintech Industry Won’t Save You
As the fintech industry has expanded, hundreds of companies have been clamoring to help consumers manage their money. Millennials are usually the target market. But while fintech companies have gotten good at selling financial products, that doesn’t mean they’re actually helping people.
According to the National Foundation for Credit Counseling, not a lot has improved over the last 10 years regarding how people manage money. In its 2017 consumer financial literacy study, it found that 40% of people budget and keep close track of their money. In 2007, that number was 39%.
In 2008, 36% of people surveyed had no short-term savings. By 2017, that number has improved only marginally to 32%.
With an entire industry dedicated to improving consumers’ financial well-being, why aren’t things improving?
Why People Don’t Want a Financial Advisor Anymore
According to research firm Cerulli Associates, the average age of financial advisors is 50.9, with 43% over 55. The age gap between advisors and young consumers makes it difficult for the two groups to understand each other.
Millennials are interested in getting quick answers to their questions and want to get them online. Plus, the rise of robo-advisors with inexpensive fees makes them wonder if it’s worth paying more for a human advisor.
That said, the feeling is mutual. Research firm Corporate Insight found that only 30% of financial advisors actively seek out clients under the age of 40. Why? Because they have no money. As an advisor, you don’t make much unless you’re selling expensive products or managing large portfolios.
When I did my college internship at Northwestern Mutual, I quickly realized that I wouldn’t last long. It wasn’t that I wasn’t good at it – I was recognized as one of the top interns in the country. I was just more interested in helping recent college grads and young families than I was in finding wealthy clients.
The Rise of Me-Too Apps
Whether you’re looking to budget, check your credit score, or save for retirement, there are several apps for that. The problem is that there’s no app that offers a one-stop shop. You can fill an entire home screen page on your phone just with personal finance apps.
Unless you’re in the fintech industry, there’s simply no way you can keep track of all the apps that are supposed to help you manage your money. As such, consumers either just pick one hoping it’ll do everything they need it to (which it likely won’t) or get paralyzed by the selection and give up.
There’s No Profit in Emergency Funds
The majority of financial content you’ll find on the internet is focused on long-term planning. That’s because life insurance and investing products are extremely profitable.
Helping people reduce debt and build cash reserves, however, is not a profitable endeavor. In truth, most articles you’ll find online on debt reduction will point you toward a financial product. For example, a balance transfer credit card or consolidation loan. But if you need a strategy to pay down debt more quickly with that product, the advice is paltry.
Emergency funds aren’t priorities with fintech companies, either. That’s because the best advice on emergency funds is to simply sock money away into a savings account and leave it there until you need it. No one’s making a lot of money with that advice.
In fact, there are some investment companies that encourage you to invest your emergency fund so that you don’t lose money due to inflation. Of course, they’re profiting off your investment, so it makes sense to them.
But the problem with that advice is that doing so, even in a moderate-risk portfolio, leaves your safety net exposed to the market. Depending on how it performs, you could lose more than what you’d lose to inflation. And if the market enters a big downswing at the same time that you need the cash, you may not have as much as you need.
Affiliates Produce Content to Drive Traffic
Most financial institutions get a large portion of their customers through affiliate marketing. Companies partner with financial institution to promoting their products. In turn, the financial institution pays them for every referral they send or for every person who applies for a product through their affiliate link and gets approved.
If you read an article online about the best credit cards or how to refinance your student loans, chances are that an affiliate wrote it.
The best affiliate companies have standards of editorial integrity. During my time writing for NerdWallet’s credit cards team, I didn’t know the details of how the company earned money off my articles. I was free to write objective card reviews and “best of” round-ups. The company goes to great lengths to preserve an objective, consumer-first mindset, sometimes to the point of recommending not to apply for a financial product.
But the reality is that these companies aren’t non-profits. They don’t write much content about products for which they don’t have an affiliate relationship.
What You Can Do
While there are trustworthy, consumer-first fintech companies out there, it’s not always easy to know who they are.
Be skeptical about the content you read online, but don’t let distrust paralyze you. Use apps to make your money management easier, but don’t rely on them completely. They aren’t built to offer comprehensive solutions. Take the time to educate yourself from different sources to make sure you’re making the right decisions.
Understand that there’s no one-size-fits-all answer to personal finance questions. Each person has different means, priorities, and goals. Make sure you know what yours are so you can avoid getting caught up in products and services that you don’t need.
In the end, the onus is on you to manage your money. No app, product, or website is going to do it for you.