Something Old, Something New

Friday, August 16, 2019

By Corey Stone, Entrepreneur in Residence, Financial Health Network

I recently tried reconnecting with a college friend I hadn’t seen for decades. We’d each settled on different coasts, married, and raised families. When I first reached out by email I found our communications jarring. The clipped, efficient sentences and abbreviations we typed on our devices bore no resemblance to the rambling letters and occasional phone calls we’d once exchanged. How much had life — including the time pressures and responsibilities of adulthood — changed us? And how much was it the culture of the internet, smart phones, and all their associated behaviors and protocols?

It’s a similar confluence of technological and cultural changes that have reconstituted the basic systems most of us now use to conduct our financial lives — and quietly altered our ways of perceiving and managing them, in turn. This blog series has highlighted how the evolution of checking accounts and payment cards — the financial products most of us use on a day-to-day basis and have come to take for granted — have then compounded challenges many Americans face in managing their earnings and themselves.

  • Migration of payments from checks and cash to card payments and automatic debits — a process still underway today — has made it easier to spend and harder to set aside funds for recurring expenses the way some families once did with cash and paper envelopes.
  • Frequent debit card use for day-to-day expenses, along with auto-debits for many monthly bills, now make it far more difficult for many consumers to keep a balanced checkbook or to precisely predict what funds will be in their accounts a few days hence.
  • Ubiquity of credit cards has made it easy to use revolving credit to deal with unexpected expenses or income shortfalls (or to not plan for ones that could have been expected, or simply to give impulse control a holiday), while low minimum payments make it easy to accumulate debt, rather than repay it before the next emergency.
  • Ease of transfers between saved funds and spending accounts has made it harder for consumers to accumulate and maintain an emergency savings cushion, and harder to replenish it after drawing on it.

The features of the financial services landscape that have brought today’s consumers convenience, reduced friction, and easily accessed revolving credit have now been with us for so long that we view them as fixed infrastructure. But these payment and credit innovations didn’t result from anyone’s grand plan. They happened gradually, one issuing institution and one accepting merchant at a time. And their inexorable adoption by consumers over nearly two generations has been accompanied by a loss of some of the tools and habits of mind that helped the grandparents and great-grandparents of today’s Millennials make it through two world wars and the Great Depression.

In recent posts I’ve tried to catalog a few recent fintech innovations that can help restore some of these habits — hence my borrowed term — “retronovations” — to describe them:

  • New ways to earmark income for regular expenses that replace the old cash envelopes many households once used religiously;
  • Using AI to track spending and pending payments the same way check registers once did in the days before debit cards and auto-debits;
  • A credit card minder that keeps our indebtedness in check by helping us commit to fixed repayment periods, the way installment loans once did; and
  • New caching places and commitment devices that enable us to build and preserve emergency savings cushions, and replenish them when we really need to draw on them.

That some of these retronovations are getting eager uptake in the marketplace — even when offered by fintechs who piggyback on our existing financial infrastructure — gives cause for optimism. Perhaps these new apps appeal because they trigger some residual cultural memory of an earlier generation’s era of paper checks, cash payments, and installment loans that helped keep impulses in check and commitments kept. If so, there is reason to believe that, with new tools to follow old examples, consumers might be better able to keep their future selves in mind when managing their daily finances.

I realize much of this may sound Pollyannish. The inability of 40% of households to come up with $400 in an emergency funds, and broader shortfalls in the majority of Americans’ financial health have both structural and policy causes that are unique to our moment in history. Wage stagnation, job insecurity and unpredictability of earnings, debt overhangs resulting from rising education and medical costs and past cash shortfalls are big contributors to our financial health crisis. A few apps that help households manage a bit more wisely won’t solve those bigger challenges. But they can enhance households’ ability to weather them.

There is value to revisiting the ways we once led our lives, just as there is from re-reading old letters written before the Internet era. They tell us what we may have lost and something about what we can regain. (For what it’s worth, I finally did reconnect with my old friend. When we met face-to-face, our conversations fell into the easy, slower rhythms and careful attentiveness we once knew.)

Consumers’ early uptake of these financial retronovations suggests that, when they become part of banks’ and credit unions’ core banking services, many more Americans will be able to benefit from an earlier generation’s tools and habits for financial self-management. My next post outlines how to make this happen.


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