Self-driving cars will soon become commonplace. Next up, self-driving money? Technology is altering almost all areas of modern life—for better or worse. New research aimed to track tech’s impact in the financial space, particularly the effect automated financial advice can have on savings patterns.
The results were impressive, according to data from Wealthfront, Redwood City, Calif.-based creators of financial planning and investing software.
“In the last year, the company has observed that consistent engagement with Path [its proprietary fintech platform] correlates with a 28 percent increase in a client’s savings rate. For a 32-year-old client with a $130,000 income and $100,000 in savings, this could mean an additional $1.25 million dollars at retirement,” Wealthfront concluded based on its 2018 Savings Report.
Path is an “automated advice engine”—or, put more simply, a downloadable app—that requires users to link their financial accounts, outline short- and long-term financial goals and update changes to their money situation (such as income fluctuations, buying/selling property, etc.) whenever they arise. The platform factors in forecasted economic factors like inflation and Social Security, to boot.
Path then analyzes the user’s input and offers a glimpse into their financial future, as well as recommended courses of action that can improve outcomes.
Wealthfront’s research indicated that the more one utilized Path, the more their savings increased.
“The current financial system does not adequately encourage people to save enough. As of June 2018, the average savings rate in the United States was only 6.8 percent, which is well under half of what is required to comfortably meet short-term financial goals and retire comfortably. Wealthfront believes making small improvements to the current system is like applying a band-aid and the only way to impact change is to create something new,” the company noted in a statement.
Its goal is to eventually achieve full financial automation—or create “self-driving money.” Clients would have their paychecks electronically deposited into an account that would automatically pay their bills; allocate appropriate amounts toward retirement accounts, emergency funds and other savings; set aside money for living expenses’ and invest whatever is leftover in the most tax efficient way possible.
“Automating financial advice leads people to better outcomes and we’re thrilled to have such incredible data to back this assertion,” said Andy Rachleff, CEO and co-founder of Wealthfront. “Our observations show technology is the solution needed to help people save more. We look forward to empowering more people to increase their savings.”