The state of Americans’ retirement savings is dire – one in four Americans has no retirement savings at all, and even those who save don’t save enough.
Financial education is more important than ever, and more school districts across the country are starting to add financial literacy courses to their curricula. But these courses aren’t catching on as quickly as they should. According to the US Financial Literacy and Education Commission, only: a third of adults was able to answer at least four out of five financial literacy questions about mortgages, interest rates, inflation, and risk. Why is it still so hard for people to think about money in the long run?
Biologically, humans are not wired to think about our needs decades in the future.
“For most of our history we lived in hunter-gatherer communities, where resources were plentiful and all you could take with you is what you could carry, so we’re not really committed to collecting more than we need for the next day or weeks. The concept of delaying gratification and saving for the long, distant future is just not something we’re stuck with.” — Brad Klontz, financial psychologist, author
By leveraging the power of artificial intelligence (AI) and digital tools, we can begin to change that mindset. In fact, it is already happening and has the potential to save a country’s financial health.
AI technology is poised to completely overhaul our finances, enabling smart banking apps to automate our budgeting, savings and investments. Machines can think deeper and differently than we do, but it takes trust to work. Taking that first dip in a pool was scary. Your first bike ride was scary. Fear of the unknown is very common, but once we face our fears and realize that AI can help us dispel financial fear, we can all relax a little.
Every American deserves the right to put their finances on autopilot. While this ideology may seem strange to ordinary people, the top 1% have no problem transferring their money to expensive financial advisors: “here, you figure it out.” Meanwhile, they sit back and enjoy lofty returns. Now we have so many great apps and financial tools at our disposal that anyone from retail workers to artists to digital nomads can have the luxury of an automated financial life, handling bills, savings and investments for them.
How can AI repair our brains – and make us financially fit?
Remember when your mom kept reminding you to do your chores until you did them? The same principle works with ‘digital nudging’, which was used to help people save for retirement. What is a nudge? In the mid-1990s, Schlomo Benartzi and Nobel laureate Richard Thaler developed a program called “Save More Tomorrow” that sent informational emails to help people make smart retirement decisions. The power of these nudges allowed Benartzi and Thaler to get employees to gradually increase their savings rate over time. As of 2017, it has positively impacted more than 15 million Americans.
Another example is from the Obama administration. As an experiment, more than 800,000 soldiers were given the opportunity to participate in a savings program. One group received emails with smart steps they could take to save. These include examples of how small contributions can lead to large balances in their accounts. The test group received no guidance or digital nudges. The group with the email nudges had the highest sign-up rate. Through the power of AI technology and machine learning, we can give even better, more personalized and insightful pushes to millions more Americans, who can then make more prudent decisions about saving for retirement.
Artificial intelligence nudges can look different to different people and can be as simple as a reminder to save a few hundred bucks extra when spending is low. They can also be suggestions for putting money you’ve saved in a conservative trading account and watch your money grow. For example, when people are shown how compound interest works 5, 10 and even 20 years later, they are more likely to take action and start saving. We just need that little push to do it. And with smart banking apps, you don’t have to do anything once you’ve set the goals and agree to start saving. The app does that for you automatically and even calculates how much to allocate and for how long, eliminating headaches and stress.
While our brains may not be wired to think long-term about savings, we are certainly smart enough to learn and change as humans. Financial literacy doesn’t just have to be something we formally teach in schools. It can be learned by doing and using technology tools that can speed up the process so we can all live healthier lives financially.
Andy Taylor is CEO of dough, a fintech startup that helps people manage and grow their money autonomously.