Episode 9 of Tech Lightning Rounds explores how mobile applications can help reduce debt, increase personal and business savings and 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%. This has caused Forbes to call student loan debt in the United States of $1.5 trillion a full-blown crisis.
In this episode, we speak with entrepreneurs and executives who are tackling these issues with online tools and mobile applications. Many of these are smaller teams breaking new ground. Beth Kindig speaks with Steven Dorval, the CEO of Twine, who discusses how couples can establish better habits to meet their goals. She also speaks with Kristen Terrel, the Chief Operating Officer at Catch, a company that aggregates financial products for the 80 million people who are self-employed. The last interview is with Elizabeth Kelly of United Income who discusses how people near retirement age can manage six sources of income while eliminating mistakes that people 50+ can’t afford to make.
The growth of mobile banking and other mobile financial services applications are popular targets for attacks. Intertrust Secure Systems delivers proven technology to enable banks and other financial services organizations to build security into their apps, delivering advanced protection from reverse engineering and tampering. Learn more here
00:28 Beth Kindig: Welcome to Tech Lightning Rounds. I’m your host, Beth Kindig. This podcast interviews key people with deep expertise on one topic for a 360-degree view. One difference between this podcast and the other podcasts you listen to, is that I hold short interviews called ‘Lightning Rounds’ with the goal of getting you a lot of compelling information very quickly so you can get on with your day.
00:55 BK: Unemployment is low in the United States, yet wages have stagnated since 1989 causing financial freedom to become elusive for many Americans. For instance, four in ten American workers are not ready for retirement, and 44% have less than $400 saved for emergencies. Non-consumable expenditures such as healthcare, real estate and education, have jumped anywhere from 75% to over 100%. In this episode we speak with entrepreneurs and executives who are tackling these issues with online tools and mobile applications. Many of these are smaller teams breaking new ground. I speak with Steven Dorval the CEO of Twine, who discusses how couples can establish better habits to meet their goals.
01:38 Steven: And in general, money creates stress. So how do we reduce that stress and increase their financial literacy or their ability to be good in financial lives?
01:48 BK: I also 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.
01:58 Kristen Tyrrell: What’s been most successful in the past for helping people save have been things that have really taken control out of individuals’ 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.
02:12 BK: My last interview is with Elizabeth Kelly of United Income, who discusses how people near retirement age can manage six sources of income while eliminating mistakes that people 50 plus can’t afford to make.
02:25 Elizabeth Kelly: 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.
02:39 BK: According to a Ramsey Solutions study, money is the number one topic that couples fight about and the second leading cause of divorce… Twine may be able to alleviate stress by helping couples relate differently with money, by automating savings for major life goals such as buying a house or going on a dream vacation.
02:56 BK: What is Twine?
02:58 Steven: Twine is a saving and investing app designed ideally for couples to be able to work collaboratively, to be able to reach those goals that matter to them, and largely are sort of more shorter-term in nature. So things like saving for a home, or saving for a down payment, saving for a wedding. Something that makes it easier for our people to be able to work together to be able to accomplish their objectives rather than one or the other feeling as if they’re trying to have to do everything on their own.
03:25 BK: What problem are you solving? Is it more of time management or do people actually see something happen to their bottomline from using Twine?
03:34 Steven: Yeah. So… We… I think we solved… We believe we solved two problems. One, a very practical problem of a lot of people want to become better savers, make it a more consistent habit, and they also want to become an investor, but they’re really intimidated by the investing community and all of the jargon that happens. And so, we’re able to help them in a very practical way to save more effectively, to create different financial habits with money, and also to be able to start to test the waters of, “Wow, investing’s not quite so scary, and I can do this, and I can see how it helps me reach my goals.”
04:08 Steven: Because then as they have longer-term goals, the power and the benefits of investing are that much more important. But the second thing we believe we can do is we can actually help to increase and improve communication within that family structure however they define it. So it makes it easier for them to have those conversations that might not come up naturally. We did a survey… When people… While they might talk about money, they don’t talk about it regularly, and they rarely have a very scheduled way to be able to talk about it, and in general money creates stress. So how do we reduce that stress and increase their financial literacy, or their ability to be good in financial lives? And by doing that we hopefully can help them make their lives happier.
04:55 BK: Yeah. We have an interesting problem right now where unemployment is low, but wages are also low. Wages are not much higher than they were in 1989, relative to inflation. What does Twine do to help with the future of savings and investing exactly? Do you address those problems?
05:11 Steven: Right. Yes. It seems from the outside almost an overwhelming sort of challenge, right? It was heartbreaking during the government shutdown to hear how many people with stable jobs found themselves living so paycheck to paycheck. And so, I think the best way we can try to address that is by trying to help people to establish different healthier habits around saving and investing. So what we hear from our customers is the thing they like about it is that they can set it up once, they can establish their recurring deposits, and then they can go about their lives and they know good things are happening in the background. Right? So if we can establish a different relationship with money, and not make it quite as a conscious choice that you have to do every day, then we think that can help to improve those things and make it so that somebody isn’t sort of so stressed out by living paycheck to paycheck, that if something goes wrong, which inevitably it does, that there’s a little bit of a backstop and then they can also be thinking about…
06:10 Steven: The things that are ultimately driving their satisfaction in their life, which is not money, that’s not what we heard in the consumer insights. It’s money enables those things that make their family better. And that’s why a vacation is such a popular goal for us because people don’t want to give that up. They know their children are only gonna be young once, or somebody who now has teenagers, it seems like just yesterday, our first time we went to Disney World and we wouldn’t have missed that for the world. And so we wanna enable more people to be able to have that same type of experience and memory. And so by establishing that habit, there’s probably some tortured analogy to the same thing with the obesity epidemic. If we could just change people’s relationship with food, then we would be able to help reduce all of those things. And the same thing with money, if we can just change their habits and their relationship and the way they think about it, and sort of de-escalate the stress, then we think that good things can happen.
07:01 BK: Steven Dorval touches on what couples can do about debt, including optimal pay-down strategies. I also take the opportunity to ask him about the financial apps on the market that are not FDIC insured.
07:14 BK: What do you foresee as far as tech trends in regards to debt and savings? Can you go over that maybe again?
07:20 Steven: Sure. So when it comes to debt, we think that there’s two topics. One, how do you maybe do a better job of educating or maybe creating more transparency for people before they get into debt? And then the second thing is, well, once people are in debt, either for good reasons or bad reasons, how can… Are there things that you can do to be able to help people to improve and reduce that, right? So on the prevention side, especially the biggest source of debt these days is student loan debt. So, if can you do a better job. And so many people don’t realize how much debt they’re taking on because maybe their parents aren’t particular… Have a lot of financial literacy. And then the child just knows that this is the right thing to do and they almost to sign away their lives without ever realizing. So can we do… Can technology make it easier for people to understand what exactly it is that they’re signing up for? And be able to make an informed decision.
08:14 Steven: Maybe going as far as to say, “Well, what is the return on that investment?” Not that that’s how people rationally think about it but there’s something. Could we figure out a human-centered way to be able to help them make that calculation? And then on the, once you are in debt, it’s some combination of looking at your sources of debt and saying, “What might be optimal pay-down strategies? Are there different ways to be able to do that?” Within the student loan debt space, there are some student loans that you ought to refinance and others that might not be a good idea to refinance. So helping them to sort that out and also being able to just uncover maybe hidden sources of savings that make it easier to be able to put a little bit more money towards those debts.
09:00 BK: You had mentioned, or I believe some of your website and whatnot, has mentioned that technology has leveled the playing field when it comes to investing. Mobile has brought on a bunch of mobile apps that are not FDIC insured, financial apps. What is your take on that?
09:17 Steven: I think the first thing is that it’s important for there to be transparency. And so to make sure that whatever you’re doing and whatever your services are available, a customer understands clearly and explicitly what it is that they’re getting. And then the second piece of it becomes then how do you make it easier for a customer to understand? Well, so it is FDIC insurance, to get the FDIC insurance, maybe you have to give up some yield. And how do you help someone to make that trade off? And so the way we think about it is that if somebody is risk-averse, and they don’t want to take market risk, then we will give them a FDIC-insured savings option. But then if they do… If we can educate them about the benefits of maybe taking on a little bit more risk and being able to earn a slightly higher return, and that comes with a different type of protection, then we wanna be able to give them that opportunity to do that. So the key is transparency and helping the customer to be able to make an informed decision at the end of the day. And I think there’s been some instances where it hasn’t been entirely clear to customers exactly what is going on.
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.