Americans face serious challenges because we’re doing a terrible job of managing our money, personally and as a nation. Our booming fintech industry should be part of the solution but appears to be part of the problem instead.
Just two of every five Americans spend less than they make, while another two spend all they make and the rest spend even more by borrowing, according to FINRA Investment Education Foundation’s latest annual survey of 25,000 people. This is little changed since 2009 during the financial crisis. What’s even more worrisome: 76% of respondents gave themselves “very high” ratings on financial knowledge, up from 67% since the financial crisis, but just 14% could correctly answer five “everyday life” questions about interest rates, inflation, bond prices, mortgages and risk.
Unfortunately, the fintech industry — and I’m part of it, which is why I feel strongly — appears to also suffer from a disconnect between its self-perception and reality. “Disrupt” is one of the most overused words of fintech, but there’s not much disruption happening when it comes to breaking Americans’ habit of spending too much and saving too little. As we face national debt approaching $20 trillion and an ongoing debate about when, not if, Social Security will go bankrupt, the fintech industry is focused instead upon finding more effective and convenient ways to get people to spend or borrow. This isn’t innovation; it’s iteration.
According to Citigroup’s “Digital Disruption” report published in March 2016, of the $19 billion invested in fintech in 2015, up from $1.8 billion in 2010, more than 70% went into the “‘last mile’ of user experience in the consumer space” – in other words, spending.
Media coverage of fintech reflects this. Breathless stories about fintech startups tend to focus upon companies that help people send and spend. A 60 Minutes story in May about “the fintech revolution” focused on a firm that helps companies accept international payments online. Stories about fintech industry trends in publications ranging from the Wall Street Journal and the New York Times to Forbes focus almost exclusively on payment and lending companies and services.
In July, boutique investment bank Keefe, Bruyette & Woods launched a financial technology index on Nasdaq to provide a benchmark for fintech investors. However, of the 49 companies listed, many of them veteran financial services players rather than fintech pioneers, less than half a dozen actually do something to help consumers save and invest their money. The vast majority of the rest are focused on — you guessed it — ways to make it easier for people to send and spend their money.
There are exceptions, of course. Acorns, for example, has an app that gives people a way to automatically invest their spare change and encourage further saving and investing. CAIS has built a platform to give financial advisors and their clients access to due diligence, and opportunities to invest in blue chip hedge and private equity funds. Envestnet has built an alternative wealth management ecosystem for financial advisors and their clients that is more efficient and transparent than what major Wall Street wealth management firms have.
But compared with what fintech is doing in the payments and lending space, and the wall-to-wall media coverage of the same, these efforts seem like drops in a bucket.
If more voters, and the politicians they elect to represent them, had a clearer understanding of how to manage their personal finances, investing and retirement, America would be in a stronger position to solve its most pressing economic issues.
The fintech industry is missing out on a huge business — and public relations — opportunity to improve the average American’s financial literacy. It’s time to get started.
--- Read 7 Critical Changes Driving Fintech Evolution: McKinsey on ThinkAdvisor’s TechCenter.