Technology is rapidly changing personal finance, much of it in positive ways. Online tools make it easier to save, budget, invest and plan. Mobile tech, in particular, is bringing many millions of underserved individuals around the world into the financial mainstream. This is lowering their borrowing costs and, through simpler transactions, boosting profits at micro businesses.
But a dark side is becoming evident. Millennials are most likely to use mobile payments, and those that do are more likely to overdraw their checking accounts, pay late fees on credit cards and take early withdrawals from their retirement accounts, new research shows.
A third of Millennials who use mobile payments overdraft their checking account, vs. just 19% of those who never use mobile payments, according to the new research, which comes from the Global Financial Literacy Excellence Center at George Washington University School of Business.
GFLEC also found that 25% of mobile payments users pay fees for credit card cash advances, vs. 7% of those who do not use mobile payments; 21% of mobile payments users pay fees for exceeding their credit limit, vs. 6% of non-users; and 26% pay late fees, vs. 16% of non-users.
Poor money management practices among this group spill into retirement accounts too: 37% of Millennial mobile payments users have withdrawn cash from their retirement account in the past year, vs. only 9% of those who do not use mobile payments. Half of Millennial mobile payments users have borrowed from a payday lender or other alternative financing source, vs. 27% of those who do not use mobile payments.
On one level, this makes no sense. Those who use mobile payments…
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…tend to have more income, assets and education. Such attributes often correlate with greater financial capability. But as the financial behaviorist Shlomo Benartzi has observed: tech today allows you to sell stocks, borrow money from a friend or cash out a 401(k) without any contact with another human being. “Because smartphones can encourage us to tap and swipe quickly, we might neglect the long-term consequences of our behavior,” Benartzi wrote inThe New York Times.
Convenience is the ally of impulse spending, which works against financial security. Another problem is that 75% of Millennials that use mobile payments fund their account with a credit card, which means unchecked spending is more likely to rack up charges and fees.
Mobile finance is here to stay. Globally, financial technology startup companies received $25 billion in capital in 2016, a 30% increase from 2015, according to the GFLEC report. The rate of smartphone users making mobile payments doubled over the four years ending in 2015. Mobile point-of-sale transactions are projected to grow seven-fold over the next five years.
Fed researchers concluded that mobile payments are such a financial force that educators must look for ways to teach students how to use these new tools at an early age. The advantages and conveniences are many. But the dark side cannot be ignored.