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How Automation Overcomes Barriers to Building Financial Resilience

Financial resilience is the ability to survive and adapt in the face of financial adversity, especially through unplanned events—something COVID-19 has forced everyone to think about. For most people, the path to financial resilience is long and largely unplanned, creating significant risk.

Unifimoney collaborated with UMB Bank‡ to make it easy to create a systematic and accelerated path to financial resilience for young professionals. Unifimoney is a unique account that integrates traditionally separate products and automates many of the manual tasks required to optimally manage your money. By helping to optimize for passive income today and invest this automatically for the future, Unifimoney customers accelerate their path to financial resilience.

The inescapable fact is that bad things can happen to good people, whether it’s a macro event like a global pandemic or more personal changes around health, career and relationships. Financial resilience is created over years through employment, investing and accumulation of assets. It is the result of small acts, multiplied many times over, which assemble into a strong defense against life’s unexpected changes.

Most people plan for prosperity but don’t consider adversity. Achieving financial resilience is usually an unplanned journey of working through a long career of 30-40 years, building assets like property and investments and hoping for the best. It’s almost accidental—if lucky, never to be tested. Therefore, two of the most important forces in achieving financial resilience are compound interest and time. In the wise words of Albert Einstein, “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.”

Compound interest, though, is slow. Its effects appear so small as to be unobservable, except over extended lengths of time. It can also, as the end of the quote suggests, work both ways—if you’re paying compound interest rather than collecting it, financial resilience becomes an increasingly high hill to climb.

While the ways we benefit from compound interest in our personal finance are relatively straightforward, the way we pay compound interest is far more prevalent and more insidious:

Ways we benefit from compound interest

  • Deposit interest on cash
  • Investing in equities
  • Reinvesting dividends
  • Real estate investments

Ways we pay compound interest

  • Lost interest on cash sitting in accounts paying no or low annual percentage yield (APY)
  • The invisible impact of inflation
  • Unnecessarily high fees, often on investments
  • Avoidable costs like paying too much to auto-renew insurance
  • Unredeemed rewards and benefits from spending
  • Unnecessary costs, like when we pay for subscriptions we no longer use

These fees and the static, unproductive cash losing value in accounts create a substantial opportunity cost compared with retaining that money and having it work for you; it’s multiple leaking faucets keeping you from financial resiliency.

Fixing any of these individually is relatively simple, but collectively and over time it can become an energy drain. While we all like earning and spending money, managing money is its own chore.

For example if an individual were to save $3.50 every day and invest it in a low cost diversified fund, by retirement they could (using average historical return rates) have amassed a portfolio worth over $500,000.

How automation overcomes barriers to building financial resilience

Source: Unifimoney Calculator

So far so good, but who actually has the time and energy to manually do that for 30-40 years?

Because the impact of compound interest is subtle and the negative impacts of opportunity cost are often hidden, there is no natural positive reinforcement for correct behavior or disincentive for wrong behavior. Pensions, for example, are a pillar of financial resilience but it’s nearly impossible to get workers in their 20s and 30s to invest in a reward that won’t be realized for another 40 years. It takes an awful lot of sustained motivation to win at compound interest—unless you automate.

Through its collaboration with UMB Bank, Unifimoney allows users to deposit funds in a high-interest checking account – with expanded FDIC insurance  – that earns maximum interest 100% of the time. This is just one of many ways Unifimoney and UMB utilize automation to help customers overcome the barriers to building financial resilience.

 

As the number of fintechs grows and their consumer base increases, so will their need for trusted BaaS partners. Given UMB’s offerings for fintechs, we are uniquely positioned to support a wide range of BaaS needs in the evolving fintech landscape. Click here to learn more about UMB’s investor solutions services and offerings.

 

 

 

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