Retirement & Eldercare

Will spare-change-saving apps change the way millennials save?

by
Lee Reams II
on
4/23/2015
Will spare-change-saving apps change the way millennials save?

One of the biggest challenges facing young people today is saving for tomorrow. The time value of money shows us that compounding for many years can significantly grow a small amount of funds to a large nest egg.

The introduction of saving apps like Acorns is driving this concept through to the mainstream. Backed by venture capital, this Newport Beach, CA, technology start-up lets you connect an investment account to your phone. When you make a purchase, you can now round up to the next dollar and automatically add the difference to your investment account.

Unlike the traditional bank savings account that pays near zero in interest, the Acorn app lets users slowly but steadily use what was once spare change to fund their long-term investment accounts, vacations or even rainy day funds.

A twenty-year-old starting with $100 could add just $20 in change per month to grow an investment portfolio to over $37,000 by retirement age, 65. This is assuming a 7% return annually. Obviously, if you accelerate the amount of spare change you add to the account, the portfolio could become much larger.

These types of services offer automated portfolio management based on your risk tolerance. They usually offer investment diversification and automated rebalancing. Acorn claims to offer very low fees even with a small balance in the account.

Users can download the app from their mobile devices.

Time will tell if saving your spare change really catches on, or even adds up. But considering that a huge part of the population is still living paycheck to paycheck, this might be the idea that gets some started on saving.

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Lee Reams II

Lee Reams II

CEO

I am a tax and business news junkie who has spent the last 20 years developing and executing "best in class" word-of-mouth marketing campaigns for tax and accounting professionals. With TaxBuzz and CountingWorks we have taken that same commitment to quality content directly to the consumer. Keeping you up-to-date with the latest tax law changes, business growth tips and planning strategies to help you reach your best financial outcome.

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