Advancing technology has quickly worked its way into our portfolios and (mobile) wallets. Given the plethora of mobile banking services and budgeting and investing apps, you likely have at least one financial tool at your fingertips right now. Indeed, financial technology is growing at a healthy clip, with a whopping $31 billion invested in the space in 2017, according to a recent industry report from consulting firm KPMG.
In many ways, the rise of digitizing and automating money matters is a positive movement in that it can help people improve their financial pictures. “What is financial technology?” says Jason Raznick, founder of Benzinga, a financial news and data outlet that annually hosts its Global Fintech Awards to celebrate innovation in the financial technology space. “It’s making the banking system work better for you and helping consumers live a better life. Before, some of these tools were just for hedge funds, and now we’re giving them to the average Joe.”
[See: 9 Financial Tools You Should Be Using.]
Indeed, some fintech helps make investing more accessible. While you might think you need a fortune to invest, some apps, including Acorns, Robinhood and Stash, allow you to get started with as little as $5. And continuing to invest can be as easy as making everyday purchases. With the financial app Acorns, for example, you connect your account with a bank account, and every time you swipe your linked credit or debit cards, Acorns automatically rounds up the layout and moves your change out of your checking and into a brokerage account, which is then invested into select exchange-traded funds. “With Acorns, we didn’t try to convince people that they should invest. We think a lot of people know they should invest, should save, but those are big decisions to make,” says Jeff Cruttenden, co-founder of Acorns. So his app simplifies the process and allows people to shrink investing decisions to fit into their daily lives.
Acorns costs $1 a month to use. Robinhood is free, including no fees for stock and options trading. Stash costs $1 month for accounts holding less than $5,000. If your assets add up to more than that, you’ll pay a fee of 0.25 percent a year. That makes them all more cost-effective than traditional banks and brokerage houses, an especially attractive feature for newer investors who are just starting to build their fortunes.
Fintech can be empowering, too. For women, specifically, fintech helps level the playing field. “There is a great deal of research that says women find that the traditional investing industry feels unwelcoming to them,” says Sallie Krawcheck, founder of digital financial adviser Ellevest, which focuses on serving female clients. So working with a robo-adviser or other digital tool can be more approachable. “Women can explore it in their time,” Krawcheck says.
[Read: How Consumers Can Protect Their Online Privacy Right Now.]
But fintech does have a downside. First of all, sharing your personal information, as is necessary when using most tech services, always comes with some risk. “The idea of convenience and seamless interaction being prioritized over more robust security and authentication and verification is a conversation we’ve been having for a long time,” says Eva Velasquez, CEO and president of the nonprofit organization Identity Theft Resource Center. She notes that if people were more willing to accept spending a little more time verifying their identities when using certain financial services, for example, companies would be able to focus more on security rather than ease of use. “We really want to see a cultural shift of people’s expectations,” she says.
You can start making that shift by being selective about what companies you work with and what financial apps you use. Before downloading a new app and trying a new service, you want to be sure you’re working with legitimate companies that prioritize your security. Raznick recommends using referrals from friends, testing out a service with a small investment before moving more money into it, checking that you’re visiting a secure site (the URL should start with “https://”) and even calling a company to make sure it’s for real. You can also check his site, Benzinga, for ratings and reviews of fintech companies. “People in general are more lazy today,” Raznick says. “They want one-click access, an easy button, but you have to be secure, too.”
[See: 10 Ways to Protect Yourself From Online Fraud.]
Convenience can be a problem for fintech users in another way: When it’s easier to spend money, it’s easier to overspend it, too. In fact, a recent study from the Global Financial Literacy Excellence Center at the George Washington University School of Business found that millennials who use mobile payment apps are more likely to exhibit poor financial behavior. They tend to overdraw their checking accounts, pay higher credit card fees and rely on riskier financial services like payday loans, for example. That is not to say that using mobile payment apps leads to bad financial choices. But having easier access to spending certainly doesn’t help people who may already have trouble controlling their budgets.
“There are a lot of areas in which fintech can help and provide information, and perhaps even solutions, to some personal finance problems people are struggling with,” says GFLEC founder Annamaria Lusardi. “But there is a risk: If people are not financially literate, their use of technology might not help. That’s why I really think that technology is not a substitute for financial literacy. It should be a complement. Now that we live in a digital world, it is even more important to be financially literate.”
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How to Take Advantage of Financial Technology originally appeared on usnews.com
