In the current global economy, only a small amount of people consistently put money away – be it for a set goal, retirement, or in case of emergency. As found by a Bankrate study, less than 50% of American adults over 30 save 5 percent or more of their annual paycheck. Comparatively, 3 in 5 millennials say that they do, while 1 in 5 Americans save nothing at all.
Where amounts are concerned, the Employee Benefit Research Institute is able to contribute information. According to institute, the average working individual has put aside approximately $22,500 for retirement by the age of 44, while those 65 and older have saved an average of $56,000.
The figures above illustrate a worrying shortfall from the realistic amounts needed to cover basic costs of living for the duration of one’s retirement years.
Why aren’t people saving and investing?
While some people have nothing left to save once their bills are paid, others spend their excess money without allocating any towards savings or investments.
It is human nature to procrastinate; to believe that we will earn more when we are older, thereby justify spending when we are young. We emanate the behavior taught by our parents – if they were not big savers, chancers are good that neither will we be. What’s more, we get used to spending, and it becomes increasingly difficult to part with hard-earned money.
The concept of investing can be a daunting prospect. There is a general belief that one needs a large amount of money to deposit into an investment; that trading costs are just not worth it, and that market research is too difficult, too time-consuming, or too boring to conduct. There is also the fear of a loss of capital, especially when it comes to investing in stocks and shares.
For anyone who finds that the above hurdles are preventing them from investing, micro-investing is the perfect solution.
The power of micro-investing
Micro-investing is ideal for people new to investing, as well as those who can’t afford to invest much at a time, and those looking to diversify their savings. By investing small amounts at regular instances, the funds are not missed, and an investment portfolio slowly begins to take shape.
In addition to creating a small, steadily-growing wealth, micro-investing has the power to change mental habits and attitudes towards spending. Saving becomes addictive, and the thrill of watching an investment grow might prompt users to think more carefully about their spending habits, as well as find more ways to put money away.
The National Endowment for Financial Education (NEFE) conducted an interesting study on the monetary attitudes and habits of millennials. Although most of them feel that they have a high degree of financial knowledge, results showed that over three-quarters of participants failed to answer basic financial questions correctly.
Moreover, those that showed the least ability to manage their own finances were also the least inclined to seek financial advice, believing that it is unjustifiably expensive.
To reach a market interested in investing yet lacking the practical knowledge, micro-investing mobile applications bridge the gap. In more ways than one, they are a valuable resource for a generation where half state that they would not be able to come up with $2,000 in the event of an emergency.
Acorns – an app that lets you invest in stocks with your spare change
Acorns is a well-known and widely-used micro-investing platform that allows people to save and invest their spare change. With each transaction made using a linked debit or credit card, Acorns rounds up the amount to a user-set decimal value, and deducts the difference from their debit or credit card. To make saving as accessible as possible, Acorns does not limit the amount of cards that can be linked to the account, and allows additional once-off investments at any time.
The funds stored on the application are diversified between up to 7,000 stocks, generating a fair profit with minimal risk. Acorns requires an initial deposit of $5 to begin investing. Thereafter, a monthly fee of $1 applies for accounts with balances under $5,000, and 0,25% for accounts with balances over $5,000.
Similar applications to Acorns include Stash and Clink, both allowing micro-investments at a relatively low cost.
Skraps – an app that combines micro-investing with cryptocurrency
Skraps is an upcoming application that will lead micro-investing in a different direction, being one of the first to combine it with cryptocurrency. Although still in the ICO phase, its launch will fill a key gap in the market, allowing millennials and older generations to join the cryptocurrency trend on a much smaller scale.
With many new cryptocurrencies having risen rapidly over the last year, and many being launched every day, it is possible that Skraps will return a higher return on investment than traditional micro-investment applications – although that will remain to be seen.
Similarly to Acorns, Skraps can be set up in a matter of minutes. Once cryptocurrency wallets are linked to debit and credit cards, the user can begin investing a small amount with every card purchase.
Depending on each individual’s circumstances and aversion to risk, the user is able to select his or her preferred cryptocurrency investment portfolio. These range from conservative to aggressive, with the latter a favorite of younger generations due to the greater returns that it may bring, albeit at a higher risk.
Skraps charges a monthly fee of 5% of the profits earned in that month, however, it does not have a minimum investment. At this stage, Skraps’ main competition lies with Coinflash, a similar micro-investment application, with the key difference being that Coinflash limits investors to Bitcoin and Ethereum while Skraps has no such limitation. Another upcoming application in the same category is Dust, however very limited information is provided by the developers as it is still in its alpha phase.
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