Digit communicates with users via text message, or users can view a dashboard of their progress on Digit’s web and mobile site. Digit
Warning: the statistics ahead may seriously stress you out.
According to Federal Reserve data, about half of Americans have not saved a single dime for retirement. And in a recent survey, only 68 percent of Americans said they’re spending less money than they make. That means nearly one third of the country’s working population isn’t saving any money at all.
That’s unacceptable, says Ethan Bloch, and it’s why he started Digit, a startup that aims to help people save money without having to think about it. Digit is like a digital piggybank. It connects to a user’s checking account, analyzes the user’s spending habits and income history, and uses an algorithm to automatically set aside small amounts of money—usually between $1 and $150—at times when the user is least likely to miss it.
“The system looks at your balance that day and asks: ‘Is this a high balance for this person? Does this person have upcoming bills? Do they have any paychecks over the next seven days? What’d they spend over the last seven days?'” Bloch explains. “It can find an amount that won’t put you in a bad place, and it blends in with your traditional spending, so you won’t even feel the money’s missing.”
Digit, which announced a $2.5 million seed round on Tuesday, is part of a growing group of personal finance startups attempting to appeal to millennials, a generation that is not just bad at personal finance, but positively pathetic. According to Moody’s, the Millennial generation has a savings rate of negative 2 percent. Yes, there was a “negative” before that number.
As a result, companies like Wealthfront and Betterment have come along, offering this generation an automated, easy way to invest small sums of money. Another new company, Acorns, even invented a nifty app that lets people invest the change from every purchase they make. With Digit, Bloch has created yet another dead simple tool for people who lack the knowhow—or the willpower—to properly save for the future.
The Sweet Spot
According to MG Siegler, a general partner at Google Ventures, which invested in Digit, the company is hitting a sweet spot in the market that banks largely miss. “These are systems that have been around for generations. They’re not what a younger person would gravitate toward using, unless they’re trying to save money for a specific reason, and the data shows kids aren’t doing that,” he says. “A lot of banks make money off the low and high end of the spectrum. Digit can play in this middle ground.”
To sign up for the free service, a user would enter his name, email, phone number, and checking account number on Digit’s web or mobile site. The service then begins sweeping money into a standard FDIC insured account on a daily basis.
Digit communicates with users by regular old text message, sending frequent updates on how much they’ve saved and how much they have left in their checking accounts. Users can also check their progress on the company’s website.
Why It’s Free
In these days of apps for everything, starting with a web-only service that communicates via text is definitely unusual. But Bloch defends the choice. “The messaging app, at least in the U.S., is the most used app on people’s phones,” he says. “I think it’s cool to be where people already are vs. forcing them to do something entirely new.” That said, Digit is still in private beta, and Bloch says an app wouldn’t be out of the question later on.
What’s more, Digit doesn’t offer users a way to earn money on the money they’re saving. Instead, Digit pockets the interest to fund its operations. “That’s how we’re able to keep the product completely free,” Bloch says.
Bloch admits the company still has lots to learn before it launches to the public early next year, but once the company has perfected the core product, he says, there are a range of financial tools it could tack onto the service. But first Digit has to overcome a major hurdle: getting people to trust that a computer might be better at managing their money than they are.
“There’s plenty of academic research that says we’re bad at making decisions about money. So what if we could have these complex decisions done by machine,” Bloch says. “My goal is to help people maximize their money, while driving the amount of time it takes to as close to zero minutes per year as possible.”
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