nottheaverageactuary

Actuarial news and views from Cape Town and beyond

Technology saves?

3 Comments

Digit overcomes behavioural bias by saving for you – is this a good idea?

What’s digit’s business model? Who should use this service?

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3 thoughts on “Technology saves?

  1. I think its a great idea. As mentioned at the end of the article i think it would be even better as a method of accruing some additional retirement savings. In fact why not afford retirement fund members the opportunity to easily contribute an additional amount of money to their savings every now and then whenever they feel comfortable to do so. I think over a investment horizon of 30 years plus, one could significantly add to their retirement benefits (would be interesting to try model this and see the effects on replacement ratios for DC fund members). I know of a private bank (unfortunately I cannot disclose who) that will soon be launching an umbrella fund which they are hoping will completely innovate the retirement fund space (who knows? maybe this is their big idea. I doubt it, but it would be a good one though).

  2. From what I understand their business model is similar to a pay-as-you go state benefit. All amounts saved by policyholders (PH) act as inflows, and all withdrawals act as out flows. And since this is advertised as a savings vehicle people feel bad for withdrawing too much. This should ideally result in more inflow than outflow, and have a sufficient growing amount of capital, which can be invested.
    This is probably first done in liquid assets federal bonds etc. then move to equities in the future if their business model succeeds.
    One flaw I wouldn’t feel safe giving that kind of power to an external company form my bank, even with the insurance. It seems that there is too much of a trust factor involved for it to become very successful.
    I feel they would need to get the major banks in america to recommend them as a savings vehicle for them to make any kind of head way.

  3. Hmm, I don’t see the similarity with PAYG. But you are right on two scores – the profit comes from keeping the interest, and the security is the key problem. I think they should also target banks.

    There is a product in SA 22seven which is a budgeting app which tracks all your expenses and categorises them and reports on your spending – very nice, but they also rely on having access to your bank account and that freaks me (and other potential customers) out.

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