By: Laura Walton AFC®
Delaying gratification leads to saving money, leads to having money to invest, leads to financial security…it’s that first step, delaying gratification, that trips most of us up. The old-fashioned advice is to pay yourself first through payroll deduction. But, thanks to a new and very clever personal finance app that falls into the category of “why didn’t I think of that?” we can have gratification delayed for us!
Twenty-nine year old Ethan Bloch has created Digit, an app that monitors our income patterns and spending habits and squirrels away money that it identifies as savable. In short, it’s the HAL 9000 of personal finance – it takes over for us.
Is this a good thing? Yes, in many ways. It overcomes inertia because it’s easy to set up the app online on your desktop or phone. It provides discipline which, according to the Marshmallow Study, two-thirds of us are lacking to some extent. It overcomes our tendency to not put money in savings because we might need it only to end up spending it on something we really don’t need. It probably recognizes our spending patterns better than we do and makes the most of the saving opportunities they provide. Most importantly, it results in our saving. Digit users are saving $1 million a month after a 5-month pilot period and just launching to the public mid-February, an average of 5.5% of their incomes.
The down side? Although your savings account is FDIC insured, you don’t earn any interest on your balance. For now, the interest accrues to the app which, in turn, allows it to provide the service at no charge to you. They may share interest with their customers as the app gains popularity. And, some of us are reluctant to be the first on board with a new, digital, financial product although it offers bank level security.
The bottom line is that Digit is saving when we, as individuals, aren’t. If it takes an automated program to do that for us, then so be it. And, our savings won’t earn interest but then any rate of interest on a zero balance doesn’t do us much good.
I’m curious to see how much Digit thinks I can and should save!