Nothing in the history of money has been more diabolically efficient at getting us to spend than a smartphone. It’s an instant-gratification machine for music, games, takeout and catching a ride, anywhere, all the time.
Now, however, your phone can prevent you from burning a hole in your wallet.
A growing set of apps can help with the self-control that it takes to save money for the future. Apps like Acorns, Digit.co, Level Money and Mint track all the ways you spend to tell you in one glance how to stay on budget. Some even squirrel away extra cash before you blow it.
Apps are key to getting millennials back on financial track. The generation America most likes fretting about—adults under 35—has a savings rate of negative 1.9%, says Moody’s Analytics chief economist Mark Zandi. (The savings rate for everyone 50 and under is also just south of zero.)
But phones are ideal for what behavioral economists, who study the psychology of money, call a nudge: always within reach and can make a game out of guiding us to good choices. The first time Digit got me to save a little, it texted me high-five with an animated Scrooge McDuck.
Traditional banks have apps, but most stink at helping young savers (who are less profitable for banks) track their habits, or set aside cash when it makes sense. Classic savings techniques, like scheduled transfers, are less effective for temp or app-economy workers, whose income arrives in fits and starts.
Using this new type of saving app requires a leap of faith. You have to provide logins to your bank accounts. It’s important to watch for red flags on privacy security. And while there’s a lot of junk out there, the best are worthwhile. The right software can look through all your financial data to spot trends that are hard to recognize on your own.
Savings apps divide the world roughly into two kinds of people: those who need to hide savings away from themselves to keep it safe, and those who just need more information to stick to a budget.
Take My Money, Please!
Sure, you can resist the temptation to splurge on lunch today. But what about tomorrow? That’s why some apps, including SmartyPig and SavedPlus, want to help take willpower out of the equation. I found Digit to be the simplest—and the most ambitious. It operates like a benevolent pickpocket, yanking money out of your hands before you can spend it, then keeping it safe on your behalf.
When you give Digit the login to your checking account, it watches for extra money in your budget. Every few days, it hides away up to $50 in a savings account assigned to you. It is free, and Digit’s virtual piggy bank is FDIC-insured.
Digit’s magic is how much and how often it withdraws based on your actual, and possibly chaotic, life. Its algorithms weigh a number of factors, including bills coming due, expected income, and whether you’ve been spending on a tear. Obviously, taking out more than you can afford could be disastrous. Digit is so confident that won’t happen that it offers to pay overdraft fees if it does.
Like most millennials, Digits communicates with you mostly via text message. Over two weeks, it automatically pulled about $26 from my account, and would have taken more if I’d told it to. I wish there was a mechanism to tell Digit you’re, say, saving $200 for a new phone this October. But simply texting “save more” does nudge it to get more aggressive.
Digit is for short-term saving, because you give up the ability to earn interest—the company keeps that for itself, hence the “free” service. But you can text it to ask for your money any time, and it usually arrives the next day.
If you want help making your savings grow, another robo-banker called Acorns siphons off savings, then invests the money on your behalf.
The Level Money app learns your income and spending habits, then gives you a daily, weekly and monthly spending allowance so you can meet savings goals. ENLARGE
The Level Money app learns your income and spending habits, then gives you a daily, weekly and monthly spending allowance so you can meet savings goals. PHOTO: WILSON ROTHMAN/THE WALL STREET JOURNAL
Acorns takes your spare change—rounding up to the nearest dollar on the purchases you make with credit and checking accounts. (It’s a bit like Bank of America’s Keep the Change program, but works across all of your accounts.) You can also tell Acorns to take a designated amount daily, weekly or monthly.
Then it helps you pick a suitable investment portfolio, like you can get from some more advanced robo-advisers. The app asks questions, then assigns money to one of five portfolios that include index funds from companies like Pimco, Vanguard and iShares.
Acorns makes it very easy to get you from no savings to investing, but there’s a cost. If your portfolio surpasses $5,000, the firm charges 0.25% of your holdings each year. If you have less, it charges $1 a month. So if you start the year with $200 and finish with $250, you pay 6% in fees. (For more advanced investors, apps like Betterment and Wealthfront may offer better fees. My Journal colleagues have written extensively about the booming market for investing apps.)
Are these robot bankers trustworthy? Both are above board about what they’re doing with your money. But you have to trust them with the keys to your accounts, and sensitive info about your financial habits, just like with any bank.
Digit says it anonymizes personal information and encrypts login data. Still, keep close tabs on your phone, because access to your account is just a text message away.
Like Digit, Acorns encrypts customer data and promises it won’t ever sell personal information. It also locks down the app with a fingerprint or PIN login.
Just Give It to Me Straight
For some of us, saving money is more about awareness than will power. Looking at the cash in my wallet isn’t very effective; the real story is tied up somewhere in a mishmash of credit cards, upcoming bills and 401(k)s.
One of the most-used apps on my phone is Mint, a personal finance service that’s been around since 2006. You give Mint logins for your bank, credit-card and investment accounts, and it creates a 30,000-foot view of your financial life. I’m obsessive about checking it to see when bills and checks post, and game myself into setting aside money for big purchases.
Mint is popular, but it appeals to people who like getting in the weeds.
A newer app called Level Money goes a long way toward simplifying the most important question in the moment: How much money can I spend? Level looks at all of the same data as Mint, then boils it down: A big circle on your phone or smartwatch says how much money you can spend today, this week, or this month—and still stay on track with bills and savings goals.
Setting up Level requires some work. You have to identify sources of income (including irregular ones), recurring bills and, most important, how much you want to save each month.
Level basically gives you an allowance, like you’re 10 all over again. But it’s up to you not to blow the budget. I just wish Level were faster at keeping up with recent purchases. If I buy sushi for lunch, can I also afford margaritas after work? Level says some banks and credit cards report transactions faster than others.
(Mint now offers something like Level’s budget. A graph shows your projected spending for the month based on activity over the previous three, and it warns you if you’re way off track. Strangely, the feature is only on the Apple Watch.)
You may have doubts about trusting these companies with so much personal data. Mint and Level know a lot, but they don’t have the power to move your money. Still, you need a good account password, and you need to lock your phone.
Behind the scenes, Level and Mint both use a system developed by Mint’s owner Intuit to pull transaction data from banks. They store your encrypted username and password. They don’t store your name or Social Security number. Neither service has been hacked, and Mint says the customer data it stores wouldn’t be useful for identity theft.
Both Mint and Level are free—which is usually a sign that they’re making money off us. Mint runs ads targeted to people with certain financial profiles, but doesn’t sell their data. Level, recently bought by Capital One Bank, doesn’t have ads. Its founder Jake Fuentes hopes to someday turn Level into a full-service “next-generation banking experience.”
Traditional banks should be wary. As these services grow, they could become the lifeline to what matters most in our financial lives—the data and intelligence to spend money wisely. Even today, they beat banks at helping young people start saving.