Episode 9 of Tech Lightning Rounds explores how mobile applications can help reduce debt, increase personal and business savings, and also plan for retirement. Beth Kindig interviews Twine, Catch and United Income, who are disrupting traditional finance by offering enhanced services to help automate the process of savings and financial management. Interviews are held in “lightning round” format, which are rapid interviews with tech experts for immediate depth on each topic.
Unemployment is low in the United States, yet wages have stagnated since 1989, causing financial freedom to become elusive for many Americans. For instance, 4 in 10 American workers are not ready for retirement and 44% have less than $400 saved for emergencies. Non-consumable expenditures such as health care, real estate and education have jumped 75% to over 100%.
In this episode, we speak with Kristen Tyrrell, the Chief Operating Officer at Catch, a company that aggregates financial products for the 80 million people who are self-employed. The product that Catch offers looks at a person’s financial situation holistically, rather than the current fragmented approach where taxes, savings, health care, retirement, etc. is separated across many accounts.
Kristen Tyrrell discusses why it’s important to address the financial needs of people who do not have employer-paid benefits and how to alleviate debt through automation. She states that automation could help solve some of the financial disparity we see today by referencing the many examples of automation helping in the past, such as pensions and employer-led health insurance.
She also discusses better ways to save and how robo-advisors can sometimes help.
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10:26 BK: My second interview is with a company that is addressing the financial needs of people who do not have employer paid benefits, a cohort that is essential to our economy, yet who is often overlooked. Kristen Tyrrell, the COO of Catch, also has an excellent response on how to alleviate debt through automation.
10:43 BK: What is catch?
10:44 KT: So catch is a personal portable benefits platform for the 80 million people who don’t get employer sponsored benefits. We offer a single place to set up and manage tax withholding retirement and health insurance.
10:56 BK: And most people use some form of banking app or stock investment app today, but Catch has a different way of looking at what a finance app should do, how is Catch different from a traditional banking app or stock investment app?
11:12 KT: Yeah, great question. So there are couple of things that we do differently. First, it’s that we don’t believe there’s a true distinction between a lot of financial products. Savings, investment, and insurance, for a consumer those things are all basically the same, they’re confusing, they’re expensive, they’re hard to understand, and so a lot of apps have tried to build those solutions separately and we’ve tried to bring them all together in one place. The other thing that we do that’s different is that we actually focus on taking action as much as possible. We don’t really believe in link farming, we think that it’s really difficult to just focus on content and what we really try and do is actually deliver on the outcomes that people are looking for by moving money, investing that money, automating as much as possible rather than sort of expecting the user to learn and read about everything that they’re supposed to do.
11:58 BK: And you’re a one-stop basically for taxes, retirement.
12:02 KT: Health insurance.
12:03 BK: Health insurance, okay.
12:04 KT: That’s right, yeah. We focused on the things that we think make up a basic safety net. We’ll eventually expanded into products like vision, dental, student loan repayment, 529s, life insurance. But right now we wanted to build products that people can’t get wrong. Your taxes, saving for end-of-life care, being prepared for health insurance if there’s an emergency, you don’t expect. Those are the really big things that people don’t wanna miss on.
12:27 BK: Is there a benefit to having them all one place?
12:29 KT: Yes. [chuckle] So the problem with having things in very different places is not just that you have to enter your birthday six different times, which can be annoying. But it’s also that the products don’t often know how to work together. So by putting everything in one place, we are trying to: One, make sure that we’re not asking you for the same thing again and again and again. And two, that we’re able to actually be smart about how the products are working together. So one really good example is that next year will be rolling out HSAs. And HSAs are an opportunity to put aside money for health expenses that have tax advantages. When you don’t actually understand what the picture looks like for what health insurance plan you have, it’s harder to do that in an intelligent way and you’re much more reliant on the user for knowing everything about how their health insurance works, which most people don’t.
13:15 BK: Forbes called our student loan debt a “1.5 trillion dollar crisis” What would an app like Catch do for this crisis that our country has right now?
13:24 KT: Yeah, student loans, I think is probably the biggest sort of untapped problem that millennials have. Everyone knows it’s a problem but we don’t actually know how it manifests yet. And one of the big problems is that people aren’t building assets, right? So on the one hand, a software app can only do so much, right? You can help people pay on time, you can help them monitor, you can make payments faster and easier. But on the other hand, we actually need fundamentally different products on the financial side to help people solve their student debt problem. So it’s in its early stages and I know there’s a lot of work to do and we need a lot of partners, but one of the things that we’ve been talking about is what are the products that can actually change how people repay their student loans? Whether that’s sort of extending the payback time or really helping people start to build assets earlier in their career, right? Part of the problem with student loans is you paid on your loans for 10 years and then you start to save for your future. And what we know with compound interest is that that’s really bad for you. So if there are ways that we can rethink repayment to start that asset building earlier, there’s an opportunity to really rethink what getting that number down looks like.
14:28 BK: Wages have plateaued and non-consumable expenditures have risen, with healthcare rising 76% since 1980, real estate rising 75%, education has also jumped 100%. It seems like a really hard situation to fix. What do you think people should do?
14:48 KT: So this problem, rising cost, stagnant incomes, will not be solved unless we address policy issues as well. So, I will certainly say that business is one leg of the solution and that policy solutions are really important too. But on the individual and product side, what we need to be thinking about is how do we help people automate, right? What’s been most successful in the past for helping people save have been things that have really taken control out of individual’s hands. Pensions, employer-led health insurance, things that sort of happen without you thinking about it have led to a lot of growth and stability in this country. And as this workforce has become more unstable, a lot of the products haven’t really been built to keep pace with that. So we need to help individuals automate. If you’re an individual asking what you can do, think about things you can set up so that systems sort of run on their own in your life, rather than you having to every month sit down and look at your receipts.
15:40 BK: Okay, great. And I had seen on your website that buying a five-year CD in 1970 would yield about 12%, while the same CD would only yield about 3% today. Where should people put their money to save conservatively? What would your app conclude?
15:57 KT: Yeah, I would say the answer is not a mattress. [chuckle] That’s important to know. But I think that a lot of the robo-advisors have really great conservative products. So for us, we do retirement savings, we don’t really focus on the one to two to five-year range. But a lot of the other robo-advisors offer really great products that offer a higher return than you can get on savings that are still fairly low risk.
16:22 BK: Despite one of the strongest economies in decades, only one in four Americans feel financially prepared to retirement. In the last interview, we speak with United Income, a company with tools that are geared towards helping people who are aged 50 plus.
16:36 BK: Why is managing our finances and saving for retirement so challenging? Is it like a delay in instant gratification or is it something bigger than that?
16:45 EK: Sure, so there’s plenty of research showing that lots of people don’t even have $400 saved. We know it is hard to make people save, we know that financial literacy doesn’t stick, and the best way to get people to save is to make it automatic. Through automatic enrollment in a 401K or an immediate deduction from a paycheck or anything else. As you said, it’s hard to think of your future self, especially when we’re bombarded with immediate needs and potentially immediate wants. What I would say is that while we’re very focused on why aren’t people saving enough, it’s even more complicated when you actually get to retirement age and try and figure out what to do with the savings that you do have. And that’s what we’re focused on at United Income. Those people, 50 plus, who are nearing or in retirement and have to think about, “What age do I retire? How much do I withdraw each year? In what order do I withdraw from my various accounts? How do I maximize government benefits like Social Security and Medicare? Should I think about an insurance product like an annuity?” And all of these questions are incredibly complicated and present lots of opportunities for people to make a mistake at the very point when those mistakes have the highest cost because they can’t just go back to work easily in those instances.
18:00 BK: Can you break down what you do for retirees?
18:03 EK: We’re very focused on helping the individual who comes in the door, not only maximize their investment returns by giving them equity premium, lowering their taxes through withdrawal strategies we talked about, but we’re also focused on helping them maximize government benefits. Social Security and Medicare are a huge part of financial security for many seniors, and most people make sub-optimal decisions about claiming. For instance, claiming Social Security at 62 or missing a Medicare filing deadline, decisions that can have huge impacts in their financial wellness. And we want to help optimize that for them and make recommendations to set them up for success.
18:42 BK: You’ve talked a lot about the benefits of having your finances in one place. Can you tell me a story around… You’ve told me, but can you illustrate it more as far as a real life case scenario or a case study of any kind?
18:58 EK: Sure. So the average retiree has six different sources of income that covers their 401K, their Roth, their IRA, we’ll keep going with the alphabet soup. One example is just in the past couple of months, we had a woman who came in and had nine different financial accounts across four different financial advisors. To the point that she was having trouble figuring out what money she had, she had missed a couple of required minimum distributions causing her to incur tax penalties and was just really having a hard time figuring out, “What do I withdraw? Where is my money? What do I do?” And we were able to bring those finances together so that all she had to do was budget to that paycheck each month and we handled the rest for her.
19:45 EK: I think there’s this misnomer that people want to diversify across financial advisors. When, really, what you need to do is diversify across strategies with one or two advisors. I would caveat that we are a fiduciary, we’re an investment advisor. We will only accept a rollover of someone’s account if we feel like it is in their best interest for us to manage it. So for instance, if someone was saving in the government’s thrift savings plan, which has an underlying fund fee of two basis points, we can’t beat that, no one can. We would tell them to leave their money outside and we would make recommendations on how to manage it outside, but not recommend consolidating it. So there are examples where it doesn’t make sense, but in a lot of instances, it does.
20:33 BK: Thank you for listening to Tech Lightning Rounds. Please support the production of this podcast by subscribing to iTunes and leaving a review.
20:41 S1: This podcast was brought to you by Intertrust Secure Systems. We deliver proven technology to enable banks and other financial services organizations to build security into their apps. Go to Intertrust.com for more.