New technologies have not only brought about a revolution in lifestyle, but also in the way of saving and investing. Fintechs, companies that combine technology and finance, offer powerful tools and mobile applications to help manage household finances. For example, facilitating cost control and cutting, as well as applying automated savings methods.
“Saving is a matter of habits and psychology,” says Eloi Noya, author of Fintech. Savings and investment in the digital financial era, a book that covers the map of financial technology in Spain and reviews the main keys to increase wealth. Noya, professor of finance and technology at business schools and director of Innovation at the Institute of Financial Studies (IEF), is convinced that fintechs simplify the management of domestic finances.
When the problem lies in the difficulty to save, these tools allow “creating automatic mechanisms” to facilitate the achievement of this objective or programming “rounding of expenses that are derived to a virtual piggy bank”. In this way, they allow the user to save almost without realizing it.
How do they work? First, the user must proceed to download and then identify themselves. Then you will need to enter your bank details. Once this step is done, you will be able to select a saving method. For example, allocate a percentage of each income that reaches the bank account for this purpose.
Another method that can be adopted is the saving of rounding up all expenses –whether credit card or direct debits-. Thus, for a receipt of 37.80 euros, 2.20 euros would be diverted to the virtual piggy bank until reaching 40 euros. “The amount would vary depending on the pace that each one wants to set,” says Noya, while ensuring that following this method has worked for him in his case. Basically, it is nothing new. These digital methods emulate the habits that parents and grandparents already put into practice in managing their personal finances, such as putting the spare change from a purchase into a physical piggy bank.
Among the fintechs that allow this type of functionality, Goin, Arbor and Plum stand out. In the latter case, the application uses artificial intelligence to analyze the user’s balance and financial behavior and allocate, always with their permission, an amount of money from the savings account to the virtual piggy bank.
But applications that promote savings are just as important as those that analyze how we spend our money. An example is Fintonic, which “helps to have a much more precise picture of what our spending pattern is” grouping it into different categories. It also alerts when consumption in any item is skyrocketing and suggests in which services it can be cut -for example, recommending other cheaper gas and electricity operators-, as well as helping to anticipate important expenses.
Other applications make it possible to reduce the irregularity of monthly expenses, that is, those of a high amount that are charged in a given month, as is usually the case with insurance premiums. This is the case with Polaroo, which helps manage bill payments, including subscriptions. The application invoices in a single monthly receipt the group of payments that the user has authorized to make. The benefit is predictable spending “and greater stability” in the checking account balance.
In his guide to apps and technology at the service of household finances, Noya also stresses the importance of maximizing savings. And one way to achieve this is through some fintechs with automated investment managers, such as Indexa Capital, Finizens, InbestMe and Finanbest, as well as various banking roboadvisors -such as Popcoin, from Bankinter or Smart Money from CaixaBank-. “They are managers who invest in index funds,” says Noya. An advantage of this type of investment is that the commissions are very low, unlike those paid in actively managed funds.
But, beyond roboadvisors, fintechs give access to investment in assets “that were previously for high net worth,” the author explains. An example is the art market. “Before it was difficult to imagine investing in a Picasso or an Andy Warhol, but now there is a platform in the United States called MasterWorks that buys works of contemporary art and allows you to invest from $500 -the minimum ticket-“. The consequence is that many small investors manage to buy the same work of art in order to make a profit on its sale after a few years.
