Despite all the hype and headlines and investment in self-driving tech, it actually hasn't seemed all that appealing to the public as a useful reality. Just this past month (March 2020), only 12% of Americans trusted riding in a self-driving car. Last year, only 14% of people said they'd be ready to ride in an autonomous car now.
Then the coronavirus hit like an 18-wheeler. Suddenly, having an autonomous vehicle to deliver your toilet paper or ferry you around without unnecessary human contact doesn't seem like such a bad idea. Limiting our exposure to protect our health is something most of us easily grasp, and in the COVID context, our attitudes towards self-driving cars are changing.
The same principle applies when it comes to our financial health. Limiting our exposure to risk is good, and autonomous systems can help. Having self-driving money would be all sorts of good. Think of money that acted on its own to get you where you want in life. And, we're already on the road there.
“Having self-driving money would be all sorts of good. Think of money that acted on its own to get you where you want in life.”
1.
For decades, direct deposit has benefited the workplace. Money moving automatically from employer to employee, saving costs by reducing mailing costs and time lost through waiting for and processing physical checks. Along the way, perhaps other funds are directed to medical coverage, investments, utility bills, and the like. Not exactly self-driving, but the routing and rails from this sort of automation paves the way for autonomy.
2.
Then came robo advisors for investing. Startups like Betterment and Wealthfront put the idea of leveraging AI to help manage your investments out into the public's consciousness, and traditional firms like Schwab and Fidelity reinforced it with their own robo advising offerings.
Admittedly, the actual extent to which AI shapes such investing in practice varies. Nevertheless, that type of technology exists on Wall Street and high-frequency trading desks, and should eventually trickle down to the retail advisory space. It's also available to the public through AI-powered exchange traded funds (ETFs).
“A key thing that players like Betterment and Wealthfront achieved is getting the public comfortable with the idea of investment decisions being made on their behalf in an automated fashion.”
In any case, the point is not to debate what and how much of a role AI plays in consumer robo advisors. A key thing that players like Betterment and Wealthfront achieved is getting the public comfortable with the idea of investment decisions and actions being taken on their behalf in an automated fashion. Moving money around to reach goals that you've set.
Companies like Digit and Acorns have combined this idea of automated decision making with the legacy of automatic savings deductions (like 401k contributions taken from your paycheck), to make savings a greater part of your life, based on your habits. This is further getting people comfortable with money moving on its own, in dynamic but understandable ways.
3.
“Saving and investing are important, but you use your money for a lot more than just that. ”
Saving and investing are important, but you use your money for a lot more than just that. The next stage of this journey is to bring this informed automation to more parts of your everyday financial life. While many people invest, many do not, and improving everyday financial life will obviously impact a tremendously larger population in crucial ways. By freeing up a little bit more time, reducing a little bit more risk, alleviating a little bit more stress, people can be a little bit more productive, spend a little bit more time with their family, sleep a little bit easier at night.
“Self-driving money should get you where you want to go, with none (or at least, less) of the hassles and worries of how you get there, expertly navigating you around obstacles and avoiding accidents.”
As with self-driving cars, self-driving money should get you where you want to go, with none (or at least, less) of the hassles and worries of how you get there, expertly navigating you around obstacles and avoiding accidents, and absolving you from much of the tedium — ultimately freeing you up to put your time to better use.
Robo advisors do this by automating investing knowledge and best practices, and then optimize the execution, so that everyone can benefit easily, rather than needing to study up on their own and spend the time to try and stay on top of constantly managing the process. Automated savers do it by painlessly providing the discipline so that you don’t even have to think about it.
4.
What would self-driving money in everyday life look like?
Saving you money. Maybe it's noticing you've been wasting money for weeks on single day passes for the bus and then automatically setting aside a little bit of money with every paycheck to cover a monthly bus pass.
Let's say a single day pass is $5 and you ride 5 days a week for work. So every week you're spending $25, which fits your cash flow. But a monthly pass is $81.50, meaning you could save about $20 a month. You can't do the $81.50 in a single go, but saving an extra $5/week is manageable. So after awhile you've saved enough for a monthly pass. Now you get the monthly pass at the start of the month, freeing you up to use that $30/week to save for the next monthly pass in less than 3 weeks. That's in time for the next month, and more importantly, keeps that $20 monthly pass savings in your pocket.
Your Total Commute Costs Over Time
Bridging the gaps. Or it could be automatically sourcing a P2P loan for that monthly pass and still saving you money.
Let's again say that monthly pass costs $81.50, but you want it right now. So let's suppose there's a P2P micro loan available at 10% in simple interest. That'll cost you $89.65 in total, and if you pay it off over a month, it's $22.41/week instead of the $25 of a daily pass. That's still better than what you were doing before, plus you now have the freedom to use it on the weekends as well.
Making your money go further. Maybe it's knowing that you tend to consistently make some purchases in Euros, and automatically moving some funds from your primary GBP account to your Euro account when the pound's at high point, to stretch your money further with those Euro purchases.
So for example, the pound sterling might be at recent high point at 1.2 Euro. Knowing that your business tends to make about €50,000 in payments every month, £41,667 moves from your sterling account to your Euro account in advance. The rate drops to 1.06 by the time you need to make your Euro transactions, meaning you would have spent £47,169 if you had waited to do the currency exchange at the time the payments were due. Instead, you save about £5,500.
Managing your cash flow. Maybe it's money automatically moving from your bank account to a reserve fund after you splurged on some online shopping, to make sure you’re covered for the rest of the month.
So let's say you have a monthly income of $5000, your typical expenses are $3500, and you try to invest $500. That leaves you with $1000 in discretionary spending, or $250 a week. You go in on a $500 purchase at the start of the month, leaving you with $4000, after $500 is automatically invested.
Noticing this, $250 is automatically moved to a reserve fund, leaving you with $3750 visible in your account. This is enough to cover your typical monthly expenses, but encourages you to pause on discretionary spending for the time being. After another week, perhaps the funds are moved back to your main account.
If money could start moving itself around like this, it'd be a shift towards a better perspective — money at your service, rather than you worrying about money. So how do we get there? Let’s channel our inner Kerouac and find out where the road leads.