How Micro-Investing Can Build a Giant Nest Egg

“Silicon Valley is coming,” J.P.Morgan Chase CEO Jamie Dimon famously warned in April 2015. His reference to a flood of innovative financial products targeting young people put banks on notice that change was afoot. But it’s not clear they’ve gotten the message.

Even Dimon has back-pedaled since then. “They say millennials don't like banks,” he recently told Business Insider. “I say, yeah, until that first paycheck. Then they direct deposit and they love Chase.”

Love seems a strong word. In a survey two years ago, research unit Scratch at Viacom found that 75% of millennials would prefer to get their financial services from a company like Google or PayPal. That survey found that 71% of millennials would rather go to the dentist than listen to a banker.

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Since then banks have gotten in the game. They embrace mobile banking; their apps are much improved. And millennials have matured—to a point, discovering the value of traditional branch banking as Dimon suggests. But “fintech” keeps coming. In 10 years, says Noah Kerner, CEO of financial-app company Acorns, “we want to be the mobile destination for millennials and their money.”

Acorns is investing in the future from ground zero—meaning birth. Kerner calls that the “ideal” time to start saving and investing, and he says by late next year he will unveil a savings program under the Uniform Gift to Minors Act, allowing parents to begin setting aside money for newborns in the same ways the company’s predominantly millennial customer base sets aside money for itself now.

Acorns' specialty is marrying spending with saving so that asset accumulation occurs relentlessly in the background. Given Americans’ penchant for spending, and their difficulty saving, this approach holds promise. The company’s primary app is a round-up mechanism. The company monitors customer credit and debit cards and on each purchase rounds up to the nearest dollar. If you spend $5.75 you will be charged $6, with 25 cents going into an investment account of low-cost exchange-traded funds.

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At a cost of $1 a month for small accounts and .25% of assets each month on larger ones, this “micro-investing” has proved popular. Accounts number more than 1 million. In August, Acorns added another feature. Millennials love cash-back transactions, Kerner says, so Acorns introduced Found Money, which rewards customers with cash in their investment accounts when they buy something from an Acorns partner. He calls this “cash forward” because it is an investment in your financial future.

For example, if you sign up for the Blue Apron food service you get $30 in your investment account. Other partners include Hotel Tonight and Dollar Shave Club. Kerner says he is in talks for cash forward deals with a variety of other Millennial favorites, including some lodging and transportation companies.

Can such micro investing make a difference? Yes—but only over the long run and only if the funds are left to grow. If you save $1 a day and earn 7% a year over 50 years it will grow to more than $160,000. That’s important math because young people have that kind of time and cannot count on the social safety net that older generations have enjoyed.

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Big consumer banks tend to be focused on where the money is—today, that's boomers and their retirement issues. They will pivot to millennials when they must. As Dimon told Business Insider while talking about online lenders: “It’s nothing mystical.” He added, “Can we do something like that? Of course we can.” But until they do, Silicon Valley will keep coming, and with its understanding of millennials may be difficult to dislodge.