I had an interesting conversation last week with two of fintech’s brightest minds, Theo Lau and Barb Maclean. The discussion, which was around personal financial management (PFM) and budgeting, shed light on the financial habits of Generations Z and Alpha.
The issue
As a bit of context, these generations are faced with high student loan debt and a high cost of monthly rent. In my town, the cost to rent a studio apartment is more than double the cost of the mortgage on my five bedroom, two bath home. This is only part of the problem, however.
The other half of the issue for these young adults is the lack of, or even poor, financial education. Not only is this generation growing up without Mint.com, but the best tools fintech has to offer them are buy now, pay later (which can be a useful tool but is just bad advice in general) and early paycheck advances. Perhaps the worst part of the equation is that many of these young people are heavily swayed by impulse purchases promoted by influencers on Instagram and TikTok.
Bite-sized budgeting
While it may be difficult to get folks to regularly engage in actively managing their budget, fintech may have an answer to this problem. The good part is that it already exists.
Bite-sized budgeting is a concept built to suit users with short attention spans. The PFM tools that fit into the bite-sized budgeting category have three attributes– they don’t require much input from the user, they are straightforward and easy to understand, and they only require a small amount of follow-up.
Here are a few examples of bite-sized budgeting tools already on the market:
Subscription management tools that highlight users’ recurring expenses to check for fraud, flag forgotten subscription expenses, and ensure the user is still benefitting from the subscription.
Discretionary spending tools that analyze users’ transactions, identify non-essential expenditures, and offer insights into where their money is going.
Automated savings widgets that allow users to schedule automatic money transfers into savings accounts on a regular basis.
According to a 2015 Microsoft study, the average attention span of Gen Z individuals is about eight seconds. That is four seconds less than Millennials’ attention span. By breaking the chore of budgeting down into manageable tasks, younger users are more likely to look at their budget.
What’s next for bite-sized budgeting?
The missing piece in this de novo budgeting method is offering an aggregated approach. Many of these tools, such as subscription management and automated budgeting exist either as standalone apps or as an added feature of an existing fintech. However, each of these needs to be brought under a single hub that is either standalone or offered by an existing fintech or bank.
As with the pie chart PFM budgeting technology of 2012, bite-sized budgeting will face the issue of miscategorized transactions. When users’ transaction data is incorrect, the tools may flag the purchase incorrectly or offer poor follow-up advice. Both of these issues will make users less willing to rely on them to help manage their finances.
Photo by Andrea Piacquadio
