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As technological innovations continue to move at lightning speeds, every industry has been transformed and affected in some way. Financial services is no exception. Whether it's electronic bill pay or swiping a credit card to buy a morning coffee, it's now easier than ever for money to change hands, and a plethora of apps aim to help individuals track those transactions.
Mint, You Need a Budget (YNAB) and Digit are financial budgeting apps now commonly seen on millennials' smartphones. According to a study done by Bankrate, a website that helps consumers compare products and financial rates, 34 percent of 18 to 34 years-olds have at least one budgeting app on their mobile device. So how much are these apps helping the more than a third of millennials who use them? According to experts, it might not be much.
Having an app to create a budget and track purchases seems like a good idea, but experts say simply downloading and having constant access to an app won't necessarily result in better money management or increased savings. "The apps work. They're smart, the tech is good and the idea of building a budget isn't rocket science. But the app can't hold you accountable," said Alex Avendano, co-founder and CEO of RoboCore Systems, a platform that enables rapid and low-cost deployment of robo-advisors and financial apps.
Jon Rugg, president of Los Angeles-based investment advisory firm C&R Advisors, echoed this point, saying that "the e-space has allowed high quality services to be available and allows people to start saving early. It's a great starting point to get the ball rolling, to create a plan, get educated and eventually invest."
But he believes these apps might fall short in helping users actually create – and stick to – a budget. He points to student debt as one of the issues that might make formulating a budget for millennials "very challenging." According to the latest data from the New York Federal Reserve, millennials owe over 1 trillion dollars in student debt.
Rugg also argues that even if people are covering their day-to-day expenses and bills, budgeting apps don't necessarily emphasize the importance of long-term investing and planning for the future. "I have some millennials who are very focused and great savers, but it's easy for them to think they will always make money….You're covering everything right now, but if anything slows down, there's no margin for error," he said when reached via phone.
One of the major draws of budgeting apps is the constant, real-time info that keeps users constantly aware of their every purchase. Avendano argues that features like "a mobile delivery experience, driven through texts or an app," are specifically targeting millennials. But even with more up-to-date personal financial information than ever, both Avendano and Rugg think budgeting apps are just the starting point in the e-finance space. They suggest working with a financial advisor in order to get a more holistic view of personal finances.
Certified Financial Planner Sally McCray has been working with clients since long before apps entered the personal finance sphere. "I started out before Mint and YNAB and any other variation. The big player in town was called Quicken. People used it for bookkeeping and things like that…the only thing is [Quicken is on the] desktop and not easy to use," McCray, who is currently a CFP for Financial Advisory Partners in Bellevue, WA said.
Even with sleek interface designs and the ability to aggregate all bank information in one place, McCray doesn't see sustained success for the newer, more user-friendly apps since they can't help users figure out long term goals or understand why they want to save.
When McCray meets with clients she likes to focus on goal-based planning. "As a financial planner I don't say you need to save XYZ dollars a year. I ask what your goals are. I say let's make a plan from a financial standpoint."
Despite the emergence and heavy marketing push behind budgeting apps aimed at helping users manage their finances, experts in the field of financial advising point out major flaws in their effectiveness and viability. With nobody to hold users accountable for reaching their goals, users often come up short of their savings targets, or lack a realistic picture of their expenses. While not universally the case, McCray summed up her experience with budgeting apps and users, saying, "in the end, just tracking expenses… that doesn't come to top billing, they just don't want to put the time for it."