Can an App Improve Your Financial Health?
WHY YOU SHOULD CARE
Because creating a savings plan is harder than ever.
By Laura Chubb
OZY and JPMorgan Chase & Co. have partnered to bring you an inside look at how entrepreneurs are coming up with innovative methods to help the communities around them. Enjoy the rest of our special series here.
The 9-to-5? So passé. There’s a lot of chatter today about how trends toward freelance employees, the digital platform economy and “third space” working are becoming increasingly more appealing and challenging an antiquated business formula. But what there hasn’t been a lot of focus on is how this affects another progressively out-of-date norm — the steady fixed income.
Picture your typical zeitgeist-y worker — that could be a freelance developer tapping away at a MacBook in a coffee shop; an Uber driver clocking on through their smartphone; a “digital nomad” pitching U.S. clients from a co-working space in Bali. Flexibility is the big attraction for both employers and employees in these situations, but for the individuals providing services, that flexibility also applies to how much they make. Such workers can’t rely on a regular paycheck — and late payments are an all-too-common reality for freelance vendors. Some months will see a rush of cash flow; in others, it’ll slow to a trickle.
The looming problem? The trend toward vastly fluctuating monthly take-home pay — known as income volatility — can make meeting expense commitments, from health care to rent, mortgage or debt payments, that much harder. And it can also make long-term planning virtually impossible.
According to the JPMorgan Chase Institute, a global economy think-tank, Americans now experience tremendous income volatility, and it’s on the rise. A report by the Institute, which analyzed data from one million Chase customers between October 2012 and September 2015, found that:
70 percent of people aged 18-24 now experience more than a 30 percent month-to-month change in total income.
To give you an idea of what that might look like, the data also showed median income earners typically experienced monthly fluctuations of $475 — no small amount. The report concluded this lack of steady income meant many households are ill-equipped to survive major changes of circumstance.
The Center for Financial Services Innovation (CFSI) has also looked at these issues. “According to our research, a third of the people surveyed told us that if they lost [work] or had an unexpected expense, a real crisis, they didn’t think they could last more than three months,” said Jennifer Tescher, CEO and founder of CFSI.
“Another 20 percent of them didn’t even know how long they could last.”
So are savings, stability and financial planning as outmoded as the office workday? Call it a sign of the times; there’s been a perfect storm of contemporary factors, like the decline in real wages since 2009, skyrocketing cost of living, and a tech boom that fueled freelance remote working and sharing economy self-employment. But the solution could be just as au courant.
Created by JPMorgan Chase and CFSI in 2014, the Financial Solutions Lab (FinLab) is funding big thinkers to help people manage income volatility through technology. The FinLab just announced its third class of fintech innovation winners, who will each be awarded $250,000 in capital and technical assistance to make their tech-enabled tools a reality. Past winners include Digit, which uses an algorithm to move small amounts of money from checking into savings based on spending habits; and Even, which turns inconsistent income into a steady salary by automatically saving money from above average paychecks and boosting low paychecks. Given the state of consumer financial health in the U.S., these tools could make all the difference.
“We know one app isn’t going to solve financial insecurity in America,” points JPMorgan Chase’s Colleen Briggs, Director of Community Innovation. “But technology provides a tremendous opportunity to help us improve financial health, and the FinLab is convening some of the best minds to catalyze more positive change.”’
Struggling with income volatility? Turns out, there’s an app for that.
- Laura Chubb, OZY Author Contact Laura Chubb