College Connect: Digital waves in personal finance

By Sam Durham

Financial apps have begun to cement their place in the modern consumer market.

Out of the $80 trillion in the world economy today, only $5 trillion is made of up physical currency, according to Business Insider. As global finances become more ingrained in technology, so do our personal finances.

Matt Goren, who teaches financial planning at the University of Georgia, said there are four main categories of financial applications: peer-to-peer transactions, investment management, budgeting, and online banking. Peer-to-peer is the most widely used, he said, providing PayPal as an example.

“PayPal has disrupted the world of bank transfers,” said Goren. “These transfers used to be really expensive, and PayPal saw how much people were spending… and saw it as an enormous market.” He added, wire transfers “are going the way of the dinosaur.”

PayPal established its customer base from people wanting to send small amounts of money electronically, Goren explained. Since its inception in December 1998, the service has become increasingly important. In the second quarter of 2017, the users of Venmo, a company owned by PayPal, sent over $8 billion to each other, an increase of $1.2 billion from the previous quarter, according to the company’s earnings report.

Some of those transfers came from Josh Hudson, a student at the University of Georgia.

He prefers not to spend too much, setting aside money for food each month and only purchasing essentials. However, he does find himself in situations when he needs to pay someone back, and that’s when he uses Venmo.

“If I don’t have money on me or if I’m going on a trip,” Hudson explained that “everything is bought together” and Venmo is used to pay back what he owes.

An application like Mint, which can also link to a person’s bank account, allows users to set up personal budgets and manage expenses. These applications allow the user to allocate money towards savings, bills and other expenditures. Mandi Woodruff, executive editor of MagnifyMoney, said she relies on the app to manage her finances.

“I use Mint to budget,” she said. “The amount I see in my checking account is my spending money. It’s pretty convenient.”

Investment apps aren’t as widely used in comparison to other types of financial applications. The low numbers are attributed to costs associated with the apps, and a small target audience, Goren said. While everyone spends money and allocates it, not everyone has the money to invest. These apps are unlikely to bring in people who had never invested before, and those who use brokers or other financial firms may find investment apps unnecessary, he said.

Some might feel unsure about linking their banking information to a third-party app regardless of whether it is for managing personal finances or investments because of the fear of identity theft. However, Goren said that these applications are secure, explaining that many use other security products, such as Yodlee, to provide another layer of security.

Goren said his main advice to protect yourself in using financial apps is: “don’t be dumb” and treat them the same as other online banking and financial services.

Hudson, the Venmo user, said he is unfamiliar with its safety protocols, but he trusts it with his personal information.

“Everything I’ve ever heard about it is safe. The hacking that could happen with Venmo could happen otherwise. From my experience it’s very safe.” Hudson said.

Sam Durham is a student at the University of Georgia.

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