We are living in interesting times. On one hand, we have a youth-obsessed society where a prominent tech founder proclaimed “young people are just smarter”. On the other hand, people are living longer, healthier, and more productive lives, where multi-generational workforce is increasingly the norm. At the same time, freelancing is becoming commonplace with a growing platform economy fueled by technology. These consumers today are faced with new challenges and needs in managing their day-to-day financial lives. With more than 1 in 10 workers in the U.S. relying on gig work for their primary source of income, the opportunity is ripe for fintech and incumbent banks to step up and provide more inclusive services and solutions.
Our income is becoming less predictable…
Gone are the days where we work in the same full-time corporate job and retire with pensions. Across all generations, more than a quarter of workers in the U.S. are engaging in freelance or short-term work arrangements in some capacity, sometimes with multiple employers. And the number is expected to increase: Mary Meeker reported that freelance workforce is growing three times faster (at 8.1%) than the growth of the total workforce (at 2.5%).
Unfortunately, many of these jobs are unpredictable and do not offer the same rights and benefits as with traditional employment, including retirement plan, healthcare, and vacation time. Such mode of employment also creates challenges to the traditional products offered by banks and insurance companies, as credit scoring and risk assessments are generally based on factors such as (steady) monthly income and employment history – both of which are less relevant in freelancing work arrangements. In addition, the unpredictable nature of gig work requires solutions that can help mitigate the income volatility – and increase financial security.
And our society is aging…
Along with a growing gig economy is a rapidly aging society. Many older adults today are faced with unprecedented financial challenges, ranging from outstanding student loans, insufficient savings, rising healthcare costs, caregiving costs, and in many cases, a lack of retirement funds. As with the story of gig workers , Americans aged 50 and above today face a much less secure and less predictable future, with as many as 50 million considered low-to-moderate income according to AARP.
The traditional way of financial planning no longer applies in this new dynamic world. To succeed, we need a new generation of fintechs that are willing to tackle what is hard but meaningful. As Ron Shevlin eloquently puts it, “consumers are not looking for a new (digital) savings account; they are looking for help to save”. Financial services must move beyond being deposit gatherers to actively solving the day-to-day financial challenges of consumers, and shepherding them towards a more financially secure future.
After all, this is what financial services should have been about.
Listen in to our conversation with Sarah Morgenstern, Principal, Investments at Omidyar Network, on our next episode of Shades of Grey, as we talk about the innovating strategy of Omidyar and more.
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