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Is Digit the Answer to the Savings Crisis?


Is Digit the Answer to the Savings Crisis?

Americans love to spend more than save. That habit has lead to a retirement crisis with too many folks coming up short in their golden years and younger generations overwhelmed by debt.

Is Digit, a relatively new app, the answer?

"While everyone understands the importance of creating a nest egg or rainy day fund, Americans have a poor track record when it comes to saving. The millennial generation had a -2% savings rate in 2014 and 75% of Americans reported they were stressed about finances this January," says Ethan Bloch, CEO of Digit.

Digit aims to help. "Our goal is to make the saving process as smart, stress-free, and automatic as possible," he says.

How does it work? Digit’s intelligent algorithm studies spending and income history, looks for daily savings opportunities that you would normally not even notice. Every two or three days, Digit transfers some money, usually $5-$18, from your checking account, to your secure, FDIC-insured Digit account. There are no fees for usage or withdrawal, and no restrictions on the number of transfers each month, says Bloch. Simply text Digit and money arrives back in your checking account the next business day. Digit sends you regular texts to provide you with visibility into how much money has been saved, along with words of encouragement when you hit savings goals.

The millennial generation had a -2% savings rate in 2014

"Saving automatically removes the emotional and mental commitment to start. If you have difficulty saving this app allows you to eliminate yourself from the problem so you can start winning with money," says Natasha Campbell, founder and CEO of Lifestyle Success Unlimited, a wealth wellness company that does financial makeovers for individuals.

Financial blogger J. Money is a big fan, "I signed up with them in January and I’ve already saved $764."

Kai Yaniz, a financial coach has personally used Digit. "With Digit you save without thinking about. You don’t have to set up manual transfers to a savings account since Digit does it for you. Budgeting how much to save each month isn’t necessary either because Digit does that too – all this for free," says Yaniz.

Jon Dulin, author of 7 Investing Steps That Will Make You Wealthy, says Digit aligns with the principle of paying yourself first. "A lot of people plan to save what’s left at the end of the month, but when the end of the month comes they have no money so they can’t save. With Digit you save as you go. It’s the same reason why the IRS takes money from our paychecks. If they didn’t, people wouldn’t have the money to pay their taxes at the end of the year," says Dulin who has saved $600 in four months of using Digit.

However, there are two sides to every coin. With Digit, there are some negatives. "This seems like a good app on the surface, but it’s a lot of personal information to provide to a third party, and relies on people who use direct deposit and online billing. It may be easier to just up your checking account to auto-deduct a certain amount into savings on a weekly or monthly basis, says Brent Shelton, an online shopping expert with FatWallet.com.

Campbell points to the fact that your savings earn zero interest. Digit pockets the money that it earns on the funds. Don’t need your money in a hurry. "It takes a business day to get your money," she says. Digit also isn’t aligned with all banks and credit unions yet. For now, Digit only works with U.S.-based banks.

But Dulin puts things in perspective, "Digit doesn’t pay interest, but given that interest rates are so low now, I don’t see it as a ‘deal-breaker’. It’s far more important to start saving than it is to worry about the interest rate you’re getting. There’s talk that the company will eventually pay interest too."

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Comments
Anonymous
Anonymous   |     |   Comment #1
Any computer program that "analyzes your spending" is fraught with enormous security, privacy and end-user intelligence questions. The fact that this app decides when and how to transfer funds from your account to theirs is simply mind-numbing. Anyone who needs this level of intrusion to save money will never save enough to make a difference.
AbeKuyper
AbeKuyper   |     |   Comment #12
Digit user here. It's not the "intrusion" that is needed to compensate for the lack of motivation/initiative to save that you implied, but rather the automation. I'd be willing to bet your budget isn't too tight at the end of the month :). I'm sure folks with lower expense ratios will derive less utility from it.
Fred
Fred (anonymous)   |     |   Comment #2
Most people do not like to save no matter what, reason, government benefits, shell I say more or you already get some free unearned benefits. Unless that mentality changes, most pf the lazies or pretending to be lazies know how to use the system and outsmart the stubborn and straggling savers.
Anonymous
Anonymous   |     |   Comment #8
Well it's not that hard.  They just vote for the Santa Claus candidate, then sit back and collect their benefits.  And that works, too, until Santa runs out of other people's money.
AbeKuyper
AbeKuyper   |     |   Comment #13
It's not all systemic laziness. People are, in fact, struggling to get by and have a difficult time saving. Be careful over-generalizing. Here's a thought: if you freely gave more to individuals out of your abundance, perhaps fewer of the folks you are generalizing about would stop "using the system" because they see a face behind the sacrifice.
longtime visitor
longtime visitor (anonymous)   |     |   Comment #3
Seems like a useless app for people who frequent this website. Belongs in USA Today.
Anonymous
Anonymous   |     |   Comment #4
Some states regulate business managers.
Anonymous
Anonymous   |     |   Comment #5
Digit pockets the money that it earns on the funds.
'There's no free lunch.'
Anonymous
Anonymous   |     |   Comment #7
Anyone remotely interested better read the entire disclosure...and carefully.
https://digit.co/about/legal/privacy-policy

As a computer forensic scientist for more than 30 years I'm continually amazed how easily people are duped by technology. Would you allow a stranger inside your home rummaging through your bills? Would you give them your pins and unfettered ACCESS to your accounts? Would you tell them where you've been, what you've done and how you've spent your money? As a liberally educated scientist I'm truly shocked by the following excerpts.

"Digit sends you regular texts to provide you with visibility into how much money has been saved, along with words of encouragement when you hit savings goals."

"Saving automatically removes the emotional and mental commitment to start"

"Budgeting how much to save each month isn’t necessary either because Digit does that too – all this for free"

" Digit pockets the money that it earns on the funds."

Again, read the disclosures carefully. Caveat Emptor.
Anonymous
Anonymous   |     |   Comment #10
For those of you who have the option to do so, a possible solution to "automatic" saving is to have your employer do an auto transfer of an amount you designate to the bank/CU of your choice--one that pays interest--on paydays.  Would be just be an additional amount withheld from your paycheck, as taxes, 401k contributions, etc. are now and would likely be thought of in the same manner--non-negotiable. I have no idea how many employers could do this.
Anonymous
Anonymous   |     |   Comment #11
I cannot believe the endorsements from financial "professionals" this plan is getting. 
Anonymous
Anonymous   |     |   Comment #15
"Americans love to spend more than save.  That habit . . . "

That "habit", to use the writer's own word, is just another drug habit.  Americans, too many of them anyway, are merely a bunch of drug addicts.  ****, marijuana, spending money (including other people's money), alcohol . . . and manifold other vices . . . are all drug addictions.  It's no wonder this country is circling the drain leading to a sewer of no return.  Hey you American d'bags:  only hard work can form the basis for a successful life and a wonderful country.  Drugs cannot do that!!