IFTTT with Qapital

qapitalTransitioning from being a paycheck-to-paycheck person to a person with actual accumulated savings in the bank is one of the classic problems of personal finance.

Maybe you got there easily, as soon as you started earning money. If so, you are not the majority. Some never get there. A large number of people are in the middle, struggling from year to year to make progress on the problem of building up some savings.

If you have a problem saving money, maybe you need a fin-tech crutch, one of which I just tried using last month, called Qapital. **

The national average savings rate of 5.7% (saving $5.70 for every $100 earned) is not only well below the minimum recommended 10% rate, but also is well below historical averages in the United States. Not only that, but average means that for every above-average saver, many have no savings at all.

We know from behavioral economics that automation is one of the things that works for both savings and investments. Automation – the slipping away of bits of unnoticed money from your account over time – is the most important tool for savings and investment that I know of. Automation is why 401(k)–type plans work

I picture the power of automation in the context of dieting. If I’m served a big plate at a restaurant, you’re darned right I’m going to finish everything there. Proudly. But if I had a secret invisible robot to remove a portion of food from my plate at every meal, unnoticed by me, I might just slim down faster. Acknowledging my human frailty and appetite, I might just benefit from this technology solution.

Analogously, the automation of savings keeps our greedy little hands from spending all of our money as soon as we get it. The Qapital app which I’ve been trying since April applies this power of automation to the problem of savings, with a few clever twists.

iftttQuick side note: I guess the app is pronounced “Capital,” because “Kwap-ital” is just too absurd and awful. My wife, however, decided to call it Kwap-ital and that makes me laugh every time.

Anyway, about the app. First, it suggests that you set a goal for savings, such as going on a trip, a specific purchase, or paying down debt. You name your goal in the app. We probably need specific monetary targets, for a specific purpose, in order to do the hard thing.

In mid-April I decided to set a goal of saving $500 so that each of my daughters could have $250 to purchase more shares in their favorite stock. Man, they just love stock investing! I mean, not really, but a Dad can dream. My wife set a goal of saving for a vacation to Scotland. Man, we just love eating haggis. Again, not really.

Anyway, next the app prompts you to link your checking account, which funnels money into a newly-created savings account, held at Wells Fargo and fully FDIC-insured. No word yet on whether Wells Fargo will create a bunch of fake accounts in your name afterwards. (I kid. But they deserve it.)

unicorn_frappucinoFinally, Qapital came up with clever rules to encourage your savings – some sensible, some goofy. You can program Qapital to transfer money into a savings account for accumulating sports memorabilia whenever you use specific hashtags on Twitter, like #TomBrady is the #GOAT. You can set a rule that transfers money to pay for your CrossFit membership whenever you make a terrible decision like purchasing a Unicorn Frappuccino from Starbucks. You can save money for a cruise vacation whenever the temperature in your town goes above 75 degrees, or whenever it rains. You can set a rule that transfers money to savings – to be donated to your favorite political cause – whenever Donald Trump tweets. Seemingly anything that can be measured electronically can be linked to a Qapital rule. These programmed money transfers are known as “If This Then That” technology – or “IFTTT” for the cool kids.

Other rules follow a more prosaic program for regular transfers into your savings account. A friend of mine uses Qapital to automatically transfer 30% of every freelancer paycheck he receives, so that he’ll have enough money socked away at tax time. That seems like a very sober and clever use of the app.

qapital

I chose Qapital’s “52 week rule” in which on week 1 I save $1, on week 2 I save $2, and so on increasing each week by a dollar for 52 weeks. More poetically, they could have named it the “boiled frog” rule, as I feel like the slow increase in savings will be practically unnoticed by me over the course of the year.

Whenever the money moves from my linked checking account into savings, the app sends me friendly reminders and small encouragements. As of this writing I have $10 already in my account. Sweet! Go me!

All of you reading have no doubt already calculated in your heads that I’ll reach my target of $500 by week 32, or around November 26th. Also, if I let it ride for the whole 52 weeks I’ll have set aside $1,378. You can mark your calendars and send me a tweet to ask how the process went. Even better, you could program your Qapital account to transfer money into savings every time you tweet at your favorite finance blogger.

 

**Also, I’m putting this link here and hoping you’ll forgive me and think I’m not just a hacky shill for $5. But if you do sign up for Qapital after clicking this link, I think I get $5. And so do you!

A version of this post ran in the San Antonio Express News and the Houston Chronicle.

Please see related posts:

Check out this Acorns thing

Automatic deductions is the key to getting wealthy

Daughter’s first stock investment

 

 

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Bitcoin Blockchain and Bullocks

BitcoinOne of my rules of writing is to ignore journalistic fads. I’ve considered Bitcoin since 2013 to be a complete red herring, a finance-journalism fad that has no bearing on real things, real life, and real people.

Technology people – FWIW I am not one of these – have long been excited about Bitcoin, and a couple of TedTalks from this past summer claimed that Bitcoin is “The Future of Money” and “Changing Money and Business.”

While I think that’s bananas, I try my best to be open to new ideas. I’m going to break my previously self-imposed ban on writing about Bitcoin and consider the idea that there’s something real there worth paying attention to.

Invented in 2008 by an anonymous programmer (or programmers) known by the pseudonym Satoshi Nakamoto, Bitcoin hit the mainstream financial and technology press in 2013. Bitcoins are a sort of nation-less currency created and “earned,” or “mined,” through a computer process of solving a series of increasingly complex cryptographic puzzles. As a store of value as well as a medium of exchange, Bitcoins could theoretically replace or compete with dollars, or gold, or any other widely accepted currency.

Technologists point to the advantage of the technology underlying Bitcoin – known as blockchain – which allows decentralized computers to recognize and verify transactions without having to go through a traditional bank.

Bitcoins – and other cryptocurrencies, of which there are many less well-known variants – appeal to people who like the idea of currencies free from government control, and free from the intermediation of financial institutions.

For example, whenever I pay for gas with my credit card, or withdraw money from an ATM, or automatically invest in index mutual funds, I leave an electronic record of the transactions with my financial institution, which both collects fees from my activity and collects data on my financial life. I live with those fees and that data collection because it’s super-convenient to me, and because I’m not personally paranoid about those institutions tracking my activity.

But if you hate the idea of government control of things or your activity, then Bitcoins – or related crypto-currencies – become potentially more attractive.

Early Adopters

Some of the earliest adopters of Bitcoin were people who needed to purchase things online without using trackable currency, like consumers of child pornography, assassination-services, or drugs. I wasn’t an early adopter.

silk_road
A convenient Bitcoin exchange for assassinations, drugs, and child pornography

Since 2015 until now, Bitcoin exchanges have reported up to 80% of activity driven by Chinese nationals, presumably as a way to escape currency and capital controls in their country. The Wall Street Journal recently reported that three Chinese exchanges account for 98% of Bitcoin transactions in the past month. That makes sense for people trying to squirrel their money away from the eyes of Chinese authorities, but again, is not my scene.

Bret Piatt, the CEO of San Antonio-based Jungle Disk, which offers small-business data security, notes that many people’s first encounter with Bitcoin these days happens when hackers – often based in another country – remotely seize a company’s data and hold it ransom until paid in Bitcoin. Piatt says his company can’t advise clients with how to deal with ransomware hackers, but he does point out that purchasing Bitcoin to pay the ransom is just a few Google clicks away.

The beauty of Bitcoin for these hackers, again, is its unlinking from governments and banks.

All of these adaptive uses for this cool new “future of money” tend to leave me feeling confirmed that Bitcoin is worthy of ignoring, as I have up until now.

Reasons to care

So what’s the positive case for paying attention?

From what I can tell, Bitcoin offers three main advantages:

  1. A reminder of what money is, and isn’t
  2. A vehicle for blockchain-technology adoption in transactions
  3. A tool for creative people to control and benefit from their creation

So remind me – What is money again? Bitcoin and other crypto-currencies – by their nature newly invented virtual, digital creations – show us that “money” is a completely illusory, socially-constructed idea.

There’s nothing inherently valuable about coins (or historically, stones or shells or gold) or the digital stores of value we depend on every day – they only have value because we all engage in a collective fiction that they have value.

Bitcoin – a clever creation of computer code – is just as theoretically legitimate as a US dollar. Today I find Bitcoin inconvenient and dollars convenient, but that doesn’t always have to be true in the future? As a side note and (maybe?) interesting fact, I personally pay for most stuff in $1 coins and $2 bills, which nobody else finds convenient, but that’s probably just because I like the attention it brings at the coffee shop.

dollar_coinsWhat do I mean by the adoption of blockchain technology? I hardly know myself, but I’ll take a stab at it. Decentralized computers that can simultaneously recognize and confirm identities and payment might make financial intermediation simpler, or even unnecessary.

One prosaic example could be the elimination of notaries. Notaries are meant to verify, via signature and identification check, that I am who I say I am, for the comfort of someone on the other side of a transaction, so the other side won’t be defrauded. More ambitiously, Don Tapscott claims in his TedTalk that blockchain could be used to create a more trustworthy global land title system, especially useful for the estimated 70 percent of the world with uncertain systems for proving who owns what properties. Tapscott also sees blockchain disrupting the $600 billion per year cross-border payments industry, which takes high fees and multiple days to do something that blockchain can do for nearly free, immediately. Neha Narula, in her TedTalk on the future of money, says the blockchain will allow each of us to control our own personal, financial, or health data, which we could then sell to the highest bidder.

Sigh. That makes me regret I’ve been giving all that personal data away for free, to Facebook, since 2007.

dilbert_blockchainFinally, Tapscott claims that the decentralized nature of blockchain technology will mean that creative people like artists and musicians can own and sell their work without giving up control to financial intermediaries. The computers that form the blockchain can allow a creator complete control of her work in exchange for direct payment. Silly me, I thought that’s kind of what PayPal was for, but you can see how stuck in 2002 I really am.

Will somebody please show me how to put this post on the blockchain to make it rain Bitcoins? I’m so excited.

 

A version of this post ran in the San Antonio Express News.

 

 

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Pity The Banks

sad_bankerIn my imagination, traditional banking used to be the best business. You’d get to close up shop at 3pm on a Friday. This, despite the fact that bank customers get paychecks on Fridays. Sorry folks, we’re closed because we have to have our people inside the vault, counting all that sweet, sweet, money.

Lately, however, I wonder whether banks are going the way of the buggy whip business. I know it’s fashionable to bash banks, but I think that’s insensitive.

It’s not easy being a bank these days.

So much disintermediation is happening, at an accelerating pace, that the inside of a senior management meeting of a traditional bank must feel like the last hours at The Alamo. How will any of them survive these attacks from all sides?

So many banks

Meanwhile, the traditional US banking industry doesn’t act like it’s doomed. Or at least, the market has not caught up to my fears.

Approximately 6,800 FDIC-insured banks provide for our financial needs in this country – in addition to another 6,000 federally-insured credit unions. That’s one bank for 47,000 people (or one for every 25,000 people if you count credit unions.) By way of comparison, Canada has 29 banks for a population of 35 million, or one bank for every 1.2 million people.

We have 25 times as many banks per capita as Canada. That’s just weird, because banks hardly do anything essential anymore. At the same time, Silicon Valley ‘fintech’ firms keep popping up. Little by little they’re pecking away at traditional bank services, wringing out any remaining inefficiencies.

What’s left for the banking industry that they still do better than anyone else? I can only think of one essential thing my bank does for me, and one other thing banks do for local economies. I’ll mention those at the end of this post. But it’s slim pickings overall in terms of business opportunities.

Have you started to feel bad for them yet?

I’ll review the five things that ceased being business opportunities for banks.

Growing Wealth

I learned the following from watching Mary Poppins with my girls multiple times. About a century ago, you used to be able to put your tuppence into the bank, which would then offer a reasonable rate of interest, which would then compound your money over time, to help you get wealthy.[1]

But the last century’s rise of easily accessible stocks and mutual funds, combined with more recent low interest rates, plus a slew of fintech investing solutions, all combine to make your bank a poor choice indeed for growing your money.

Personal loans

Nope. They’re gone. Since the 1980s, credit cards have taken care of that need, lending $10 to $30,000 at between 0 and 30 percent interest. Five banks, plus American Express and Discover, constitute 75% of the US credit card business.

Auto loans and mortgages

Nope, that also went away in the 1980s. I mean, you can go to your bank to underwrite these, and they can earn origination fees to do a mortgage, but banks don’t generally keep these loans on their books. Auto loans and mortgages get fed into the Wall Street sausage-making machine known as securitization, and banks aren’t really essential to the chain anymore. Auto-finance companies obviously take a big chunk of the auto business as well. Meanwhile, fintech startups like Lendinghome.com and Rocket push into home loans.

Student Loans

The federal government now guarantees more than eighty percent of the student loan market, rendering low rates for borrowers, but less opportunity for banks to set terms. That trend likely will not reverse soon for this $1 Trillion-plus loan market. Fintech startups like Earnest.com or Credible.com now seek to pick up the slack on student loan consolidation, further disrupting banks’ chances of making a buck.

Business Loans

Banks have never really been in the startup funding business, but formerly had a good shot at funding more mature local businesses. Now online lenders like Prosper and Lending Club, and a slew of smaller imitators – whether crowd-sourced or privately financed – can deliver a faster, possibly more competitive loan than a local bank. Relaxed rules for equity investments – still developing this year make banks even less useful to small businesses in need of capital.

The one bank function

These days I only really depend on my bank for one function, which is to take any of my leftover cash and safely hide it from both myself (so I don’t lost track of it) and from others (so they don’t steal it), and then have that cash be available to me immediately (like, tomorrow!) or any day I choose, with no risk of it disappearing overnight. Admittedly, that’s an important function, and I don’t have a reliable alternative right now.

grumpy_banking_catBut man-oh-man if somebody can figure out how to do that function – maybe through a combination of nanotechnology, blockchain software, and laser-beams – I am gone, baby, gone from my bank.

Commercial Real Estate

For local economies, banks also still play the essential function of financing commercial real estate development. A bank’s commercial real estate underwriter who knows the local development scene can still carve out an important function that’s difficult to disintermediate, or securitize on Wall Street, or undercut from Silicon Valley.

But commercial real estate is about all they have. Is that enough to support 6,800 banks in this country? My magic eight-ball says the outlook is: Doubtful.

I Have a Dream

Having written all that, I still fantasize about owning my own bank. Not as a profitable business, mind you, but just as a thing to have. Friday afternoon parties in The Vault, with all the cool kids, after the 3pm close? Then we turn that powerful floor fan on High Blast to simulate a magic money machine?

That would be so awesome. Once I own my bank, you’re all invited.

 

A version of this post appeared in the San Antonio Express News.

See other Related Posts

Why You Hate Your Bank

Why You Hate Your Bank, Again

 

 

[1] Don’t forget “Majestic, self-amortizing canals!” “The Ships! Tell Them About the Ships!” “You can purchase first and second trust deeds. Think of the foreclosures! Bonds, Chattels, Dividends! Shares, Bankruptcies, Debtor Sales, Opportunities!” Dick Van Dyke and cronies describe my old business in vivid detail.

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Chatting Trump, Uber, and Buy Low-Sell High

bankers_anonymous_logo

Greg Jefferson and I recorded a short conversation, that may be of interest. The whole ‘Facebook Live’ video is here, with shorter YouTube clip versions below, broken out by topic.

  1. We discussed the inaugural post of Greg’s blog, in which he explains why his hometown Muncie, Indiana is a great place for Trump to gather support. While the commentariat generally cannot imagine anyone voting for Trump, Greg could easily imagine his grandmother warming to his combination of xenophobia/racism, response to economic malaise, and a need to “Make America Great Again.” The discussion of Greg’s Trump blog-post here:

 

2. I gave a brief recap of why the classic “Buy Low/Sell High” is a horrible piece of financial advice. My post riffs off another person’s blog, which is linked to here. There’s some other high-quality stuff on that “Outlook Zen” blogsite I recently came across, so it’s worth a look.

 

3. The best thing I’ve ever read about Fintech was this blog post. Complaining about existing regulation seems to be the major business strategy of Uber, is the point of that post, under “Strategy #5.” This came up recently because Austin, TX voted to enforce existing regulation of its legacy taxi business. That will cause Uber/Lyft to pick up their ball and go home, at least until their lobby regroups and overwhelms Austin. San Antonians, always the lame sibling to Austin, are obviously rejoicing that – for once – we’ve solved a problem one year ahead of Austin.

 

 

 

 

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