A high-tech alternative to piggy banks is conveniently letting parents build up investments for their children. It can also help young adults jumpstart their savings even before landing a job with a 401(k).
By using apps like Acorns or Mylo, consumers round up purchase amounts to the next dollar and invest the change.
The apps typically require users to be at least 18 years old. But an account can be designated for a child’s nest egg or for other purposes.
“Many of our users are parents and are investing spare change as a way of saving for their children’s education, or to help them buy their first house,” Philip Barrar, CEO of Mylo, told ThinkAdvisor. “Basically, many parents know that they need to be thinking about saving for their children’s future, but with so many day-to-day expenses taking priority in the daily budget, saving for far-off financial goals can be difficult.”
Instead, these apps provide a forced savings program, so time and compound growth can help build or supplement a child’s nest egg, even if it begins and proceeds with small amounts.
Then, as young people become adults, they can invest on their own using these same apps.
Based on her experiences with college-age students, Brenda J. Cude, a professor at the University of Georgia, said these apps “are definitely becoming more popular among college students and those just post-college.”
“They state a preference for apps over websites or any other mechanism that might achieve the same goal,” Cude adds. “Clearly, a part of it is convenience, but I think there’s something else at play here. It almost seems as they view an app — versus some other format — as a signal of trustworthiness or that this is the most appropriate way for them to achieve their goals.”
Later, however, as more options become available at a workplace, such as 401(k)s, young adults may opt for a 401(k) with its matching funds and tax benefits, and apps may take second place.
But for young people who have yet to establish structured financial discipline, the Mylo app remains an ideal option, Barrar said.
The app was developed with more than half of North American millennials in mind, those who have less than $1,000 in savings, according to Mylo. In fact, the company says that on average, a Mylo user can save around $1,000 per year.
Furthermore, Mylo’s portfolios consist of low-cost ETFs, and portfolio managers weigh the user’s specific goals, income and risk profile, and then assign them a diversified portfolio that matches their needs.