Money 2.0: How Technology Is Changing the Way We Manage Money

Of all the money circulating in our economy, only 11% is cash, physical notes, and coins. The remaining 89% is all electronic. Over the past century, we have gotten closer and closer to becoming a cashless society^[1].

Countless fintech companies sprout yearly, promising us easier digital payments, better investment platforms, and more financial autonomy. The companies that do survive the grueling world of startups tend to become staples in our lives: Paypal, Venmo, and Robinhood, to name just a few.

But how have these changes affected us?

How Technology Affects the Way We Manage Money

💰 When it comes to managing our finances, there are five main areas of focus:

1. Income, which covers all the money you bring in, whether it comes from your job or from any other source.
2. Spending, which includes your expenditures but also explores loans, especially when your spending is more than your income.
3. Saving is the income you have left after finishing all your spending. This is the money you stash for a rainy day or for that big purchase you’ve been planning for a year.
4. Investing, which involves passively growing your money. There are several investment vehicles you can explore, including stocks, bonds, and real estate.
5. Protection, which looks at the different ways you can protect yourself financially, such as buying insurance or planning your estate.

Let’s explore how technology has changed each of these areas as well as how we have reacted to this change.

1. How Has Tech Affected Our Incomes?

👨‍💻 Technology has altered our jobs at every stage, from the application process to actually getting paid:

• Today, when we apply for a job, we are no longer competing with the local talent pool. Every time you click that apply button on LinkedIn, you are competing with qualified candidates from all over the globe. This level of competition has become even more severe as remote work has become mainstream.
• You also have numerous tools to teach you new skills and to help you automate certain tasks, making you better and more efficient at your job and increasing your market value.
• Technology has made the salary payment process easier for both employers and employees. For employers, the whole process can be automatable, with countless fintech companies offering payroll options. For employees, the process is quick and straightforward: They get their salary deposited directly into their bank account.
• We don’t need to settle for just having a 9-to-5 gig as our sole source of income. Instead, the internet has birthed a hustle culture and nurtured countless freelancers, all of whom make a living on the digital plains. As a result, you have numerous ways to make money and countless options to reach your financial goals faster.

The Rise of Hustle Culture

You’ve probably come across the term hustle culture before. It’s the idea that you need to work around the clock to be successful. You’ll hear the term spewing from a legion of entrepreneurs and influencers. Thanks to social media, hustle culture has been spreading like wildfire.

Is hustle culture a bad thing?

Not entirely. It can instill a strong work ethic in its adherents, making them more effective and empowering them to take ownership of the results of their efforts. It gives some people a sense of importance and meaning, which is never a bad thing.

👎 However, there are some glaring problems with this philosophy:

• Non-stop hustling can take a toll on people’s psychological well-being, burning them out and extinguishing any possibility of them having a work-life balance.
• Those who follow this philosophy tend to define themselves solely through their work solely. While it’s always important to take pride in your work, I don’t think it is healthy for anyone to see themselves through a single lens, excluding all others.
• Hustle culture breeds a comparison mentality where people not only define themselves as hustlers but also measure their success by how they are outpacing everyone around them. For the hustler, the only true form of success is to outwork everyone else.
• The biggest problem is that hustlers tend to guilt non-hustlers for “not living to their full potential”. Now, I believe that everyone needs to strive for self-actualization; there’s no better feeling. But, just because one person unlocked their potential through nonstop work doesn’t make that the right path for everyone.

Hustle culture isn’t for everyone, but it can affect everyone. Even if you don’t embrace it yourself, you may be competing with people who do. That may affect the way you present yourself as an employee.

2. How Has Tech Affected Our Spending?

🤖 Technology has affected every facet of the way we spend.

• Technology has made it really, really easy to spend money. Impulse buys have never been easier: a few clicks and it’s yours. Not only is it yours, but your spending habits have been fed into an algorithm that will serve up more of what you like on every platform you use.
• If you can’t afford what you want to buy, that’s not a problem. From pre-qualified credit card offers to buy-now-pay-later plans to personal loans, car loans, and mortgages, there’s a way to get what you want without laying out the cash. It almost feels like free money until you have to pay it back.
• To add to this sense of convenience, we can now transfer money with the touch of a few buttons, and the money will arrive in seconds. This is lightyears ahead of what we had almost a couple of decades ago. In fact, the technology is so convenient that we have turned it into a verb: “I’ll Venmo you the money!”
• All of our payments can be automated. This is handy for those monthly bills that need to be paid on time, like clockwork. It saves you time and makes sure that you never miss a payment.

Financial technology has made it easier and more convenient to get the things you need and the things you want. That makes life easier, but it also makes it harder to differentiate between wants and needs and maintain spending discipline.

The Value of Money

Technology evolves fast. Human nature doesn’t. While convenience and cashlessness make life easier, they come with a major drawback: They make us value money less.

Because we pay for everything using credit cards and money transfers, we don’t actually see the money being spent. We use virtual currency, so we don’t feel the usual pain of parting with hard, cold cash.

Instead, we value electronic money less than we value physical money, even though they are both equivalent.

According to the Journal of Experimental Psychology, there was a research paper that found the following:

Cash discourages spending, and credit or gift cards encourage it.

This can be problematic when you consider how social media has fueled a comparison culture and a destructive desire to keep up with the Joneses.

But, when you add to all of this the widespread availability of online loans, financing options, and buy-now-pay-later vendors, you get an incendiary combination that pushes people to spend way more than their income can support.

3. How Has Tech Affected Our Savings?

💵 We all need to save for a rainy day, and technology has made that easier than ever:

• Almost every bank has gone digital, enabling consumers to access and manipulate their bank accounts from their smartphones. In fact, there are online banks today that have no physical existence and can only be found in the digital world. Not only are these banks convenient, but they also tend to be cheaper than their brick-and-mortar counterparts owing to their lower overall costs.
• You can also budget your money with the help of countless budgeting apps. These apps can help you track and organize your expenses, offer insights regarding your spending habits, and can automatically set aside a portion of your monthly income. If you want even more granular control of your finances, these apps can help you separate your expenses into different categories, such as rent, food, clothes, bills, outings, and so on.
• Research shows that all the fintech companies focusing on money management encourage us to save more. According to a paper by Gregor Becker from Goethe University in Frankfurt, people save more once they have activated a fintech application. The one caveat, however, was that they needed to be financially literate to enjoy the maximum benefits of these applications.

While the mechanics of saving have gotten easier, the goals of saving can often conflict with the ease of spending. No app will save you money if you have already spent it!

When Savings Do More Harm Than Good

While saving money is necessary, it, like most things in life, should be done in moderation. The problem is that with all of the apps out there, it can be very easy to go from one extreme to another, from undersaving to over saving.

Oversaving happens when you become so anxious about your spending habits that you develop an unhealthy relationship with money. You become penny-pinching and torture yourself over every financial decision you make. You might always defer to the cheapest option without realizing that such a decision is actually costing you more in the long run.

Holding too much money in savings can also keep you from investing, depriving you of potential long-term gains.

Ultimately, it is essential to remember that while you want financial security, you should also strive to enjoy your life. This means spending money if it means extra comfort for you and your family, and it means indulging yourself every once in a while.

4. How Has Tech Affected Our Investing?

💻 You’ve probably heard countless stories (Robinhood, AMC, and Gamestop, anyone?) about how technology has changed the world of investing, empowering average consumers and giving them access to investment options that were available to a select few not too long ago:

• Countless online platforms give the average investor access to numerous investment assets. For instance, online brokers like Robinhood and eToro make it easy to invest in the stock market and use advanced vehicles, including options and derivatives.
• The available assets to invest in have gone beyond anything investors dreamed of only a few years ago. Today, there are cryptocurrencies that have transformed everyday Joes into millionaires almost overnight. And, while investing in these digital currencies is fraught with risk, the upside for some has been impressive.
• Technology also opened an asset class that was inaccessible to the general public a few decades ago: Real estate. Not long ago, REITs were the only way people with modest resources could invest in real estate. There are countless options today, such as fractional investing, crowdfunding, and P2P lending, to name a few.
• Another big plus is that we can automate our investments, saving us time and money. For example, the app Acorns will automatically save and invest your spare change every time you make a purchase.
• And, since we are on the topic of automation, you can use technology to automate your investment strategies. Some trading algorithms are so advanced that they act as robo-advisors, managing investment portfolios according to a fixed strategy.

Easier investment has real advantages, but all investment involves risk, and making it easier to take risks has disadvantages as well!

The Problem With Too Much Availability

While making investment more accessible is great, it can also be devastating if we fail to recognize the inherent risks of investing.

During the pandemic, when we were all trapped in our homes, and many of us had lost our jobs, we kept hearing cautionary tales about people who lost fortunes investing their money in the wrong assets.

More accurately, amateur investors adopted high-risk strategies like options trading without fully understanding the risks. placed their money in options because all they saw was the upside. Some researchers noticed that one of the main elements that destroyed the portfolios of amateur option traders was having a “super-wide bid-ask spread”, something many amateur traders would not even recognize.

To make matters worse, the few people who did make a profit failed to realize the role luck had to play with fortunes. So, rather than taking their winnings and moving on, they dived back in and doubled down, thinking they could replicate their initial success.

Many investors became addicted to frequent trading, encouraged by the “gamification” of investment apps, and apparently unaware that frequent traders almost always lose money.

5. How Has Tech Affected Protection?

👮‍♂️ Finally, we arrive at protection, an important category that is often overlooked in the realm of personal finance:

• Today, when you apply for any form of insurance, companies leverage big data and machine learning algorithms to decide how insurable you are and how big your premiums should be. For example, car insurance companies look at your driving habits in ways never imagined before. They can either put a device in your car or just simply track your phone. In either scenario, they can tell how reckless of a driver you are.
• Financial planning has also become easier than ever before. For example, end-of-life planning, which includes creating your will, can be done online without ever having to visit an estate attorney’s office. And, this online will protect your loved ones should anything ever happen to you.

Shopping for insurance and other forms of protection has never been easier: you can compare offers with only a few clicks of a mouse. That capability will only help you if you make an active effort to compare!

The Downside of Big Data

Whether it’s a bank using big data to figure out whether to give you a loan or an insurance company deciding what your premium should look like, big data comes with its own host of problems.

The first concern is privacy and security. On the one hand, you want to make sure that the financial institution in question has your explicit permission to use your data. On the other hand, you also want to ensure that the same institution safeguards your data and protects it from hackers and malicious individuals.

The other concern is bias. When a machine learning algorithm runs rampant, it can become biased against a particular group of people because no human is supervising it. For example, the algorithm of an insurance company could end up charging people higher premiums just because said individuals are from a particular neighborhood or community.

Putting it all together…

Technology has revolutionized every facet of our finances. And while this has meant more convenience for us, it has also spelled out problems in other areas, many of which boil down to a struggle to grapple with this technological quantum leap.

The best we can do is to enjoy these benefits while proceeding cautiously and educating ourselves as much as possible!