I like to pride myself on knowing what is happening in the fintech (financial technology) space both for personal and professional reasons. This week I was surprised when I read about a company I had never hear of before, Tally, raising a $50 million Series C. After reading more about Tally I was intrigued.*
Tally is focused on automating some of financial challenges consumers have today. Tally’s initial effort at automation is helping consumers deal with their credit card debt or as their website says “Pay down credit card debt faster.” Tally identifies which credit card balances a consumer should pay down first with the goal of reducing the carrying cost of, and eventually eliminating that debt. I don’t care where you come out in the personal finance debate, but that is a useful service.
It doesn’t take a lot of time to come up with other applications where automating additional financial decisions makes sense. Not that long ago I wrote a post about the importance of automating as much of your financial life as possible. Angela Strange at Andreessen Horowitz, an investor in Tally, wrote about how this could play out over time:
This is just the beginning of what is possible when smart financial automation truly begins to guide our financial journeys. Imagine a world where your financial app understands your entire financial picture—from all the types of debt you might have (student loans to car loans to mortgages and beyond) to all your assets (savings, investments) plus your goals in the future (a home, kids, college). Who among us wouldn’t want the automated road map, with travel time and traffic, for what it would take for us to get there?
You can begin to see how this could come together. More and more of these ‘money modules’ can be smartly and safely automated. For example, we already have robust robo-advisor solutions that can handle much of the heavy lifting when it comes to portfolio management. My colleague Barry Ritholtz recently spoke with Betterment CEO Jon Stein about the goings on in that space. I thought this question and answer were telling:
Ritholtz: So some people dislike the phrase robo advisor, what’s your view on that phrase and what’s your preferred terminology.
Stein: I think robo-advisor’s fun, it’s a handle, it’s been around for a bit now and it’s how we’re known, I use smart money manager because I think of us like a smart home or a smart car, there is just better technology now that’s available and people should all be using it, eventually everyone will be, there’s just — there’s a lot of inertia in our space.
“Smart money manager.” I think that is a great way to think about things. We all want to be smarter about our money. But it is now well-established that we humans are beset with behavioral biases. Our monkey minds have a tendency to take us off track when it comes to money. It would nice if financial literacy education would help disabuse us of our biases, but the bad news is that they don’t. Barry Ritholtz writing at the Big Picture notes:
It is bad enough that most people are not financially literate, but the painful reality is that investor education does not work — at least not much beyond six months. After that, it is like any other abstract subject taught in a classroom, mostly forgotten.
Which is why we need more of financial lives to work on autopilot, and work together. In ideal world we would tie together our credit card module, with our mortgage module, with our savings model, with our investing module and our tax module. Only a small fraction of people would miss dealing with the daily hassle of personal money management. The rest of us would rejoice. This would free us up to focus our time and efforts on other, more meaningful, endeavors.
None of this is going to be easy. Deciding which credit card to pay down is relatively easy compared to issues like how to generate lifetime income during your retirement.. The Economist recently profiled Nobel Prize winner Robert Merton’s work on portfolio choice over one’s lifetime. From the article:
The best lifetime strategy is a complex problem to solve, even for brainy people such as Mr Merton. But he hopes that, with the passage of time, the pension industry will create more user-friendly products. Cars are easy for their users; the complex work is done by designers and engineers. Pensions should be the same. Needs drive innovation, says Mr Merton. “That is why I’m an optimist.”
I would put myself in the optimist camp as well. The tools are being built. Eventually they will get tied together. Fingers crossed.
*No position in Tally. Just like what they are doing.