Home' Trinidad and Tobago Guardian : May 10th 2015 Contents MAY 10 • 2015 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
FINANCE | SBG15
and turns to it to find anything from a taxi to world
news, turning many established industries upside
down. They seem willing to trust Web-based new-
comers with their financial affairs too.
Few millennials visit bank branches. A third of them
think that they won t need a bank account at all before
the end of this decade. One survey suggested that 71
per cent of them would rather go to the dentist than
call on their bank. Insofar as they care about financial
innovation at all, they expect it to come from tech
groups, not today s incumbents.
At the same time the financial crisis has led to a
bout of introspection at banks. Some of them have
been overwhelmed by successive waves of new reg-
ulation requiring immediate management attention.
Whatever IT budget they may have is likely to be
spent largely on ensuring that ATMs go on spewing
cash. Innovation of the sort that will pay off years
after the current boss has decamped to his next job
is not high on their list of priorities. Newcomers with
no legacy systems and no pension deficits to worry
about can do things more cheaply.
As a rule of thumb, banks make money in three
ways, in roughly equal parts. All of these now are
The first is the difference between the rates they
charge borrowers and the interest they offer savers,
known as the net interest margin. This requires skill
in identifying creditworthy customers, which fintech
outfits reckon they can do better than banks.
"Think about the scenario of a loan officer talking
to a prospective client," said Marc Andreessen, a tech
billionaire whose venture-capital fund has made large
bets on fintech, at a conference last year. "To software
people that looks like voodoo. The idea that you can
sit across the table from somebody and get a read on
their character is just nonsense."
The approach of fintech peer-to-peer lenders is
based on using data more adroitly than banks do.
However, their methods have yet to pass the test of
a serious downturn in the financial sector or the wider
The second way of earning money is by charging
for making payments, for example through credit-
card fees. Established giants such as Google or Amazon
once would have been wary of tarnishing their brands
by having anything to do with payments systems, but
now all kinds of contestants are getting interested.
Apple Pay, launched in America last year, allows
people to pay in stores with a mere tap of a phone
or watch, gatecrashing a payments ecosystem that
used to be the prerogative of the banks. Paypal and
others are offering buyers the option of settling in
installments, thus extending credit to customers who
might once have looked to their banks for funds.
The third source of profits for banks is a cornucopia
of fees, from charging for overdrafts to brokering
investments. These look unlikely to survive intact.
Human investment professionals now are being chal-
lenged by "robo-advisers" doing much the same job
for a tiny fraction of the price. Outrageously unfavorable
exchange rates imposed by banks when sending money
abroad, once unavoidable, now can be circumvented
via dozens of online moneychangers.
No matter which service fintech newcomers
"unbundle" from incumbents, the banks business
model will suffer. For the moment fintech s leading
companies still are doing mere billions in trade, though,
where banks handle trillions. To fintech s detractors
that shows that the newcomers have not gotten far,
despite all the hullabaloo. To its fans, however, it
demonstrates that many years of exponential growth
@2015 The Economist Newspaper Ltd. Distributed
by the New York Times Syndicate
From Page 14
If your retirement plan mostly con-
sists of working longer to earn and
save more money, you might need
to rethink that strategy. The 2015
Retirement Confidence Survey
from the non-profit Employee
Benefit Research Institute (EBRI)
and Greenwald and Associates
revealed that many people are unprepared
for retirement because they left the work-
force earlier than expected and aren t saving
enough money, reports USA Today.
Here are the startling results of the survey,
as well as tips on how workers can get back
on track with their retirement savings.
Workers are financially
unprepared for retirement
The survey polled more than 1,000 work-
ers and 1,000 retirees, and found that 28
per cent of workers have less than US$1,000
in savings and investments, not counting
the value of their residence or defined ben-
efits, like pension plans. Fifty-seven per
cent have less than US$25,000.
Many of the retirees surveyed said they
had planned on working later in life to save
more, but unexpected events took them out
of the workforce early. Of those surveyed,
60 per cent stopped working due to health
or disability issues, and 27 per cent left the
workforce because of changes within their
Jack VanDerhei, co-author of the 2015
Retirement Confidence Survey and EBRI s
research director, told USA Today, "People
keep saying, I m not saving so I ll plan on
retiring much later, but oftentimes for rea-
sons they can t control, people are not able
to retire as late as they want."
Still, 67 per cent of the workers surveyed
said they plan on working during their retire-
ment years, even though only 23 per cent
of the retirees reported actually worked dur-
ing these years.
Why aren't workers saving more
The study found that people cited the
high cost of living and day-to-day living
expenses as the reasons why they aren t
saving more money for retirement. Of those
surveyed, 69 per cent said they could
increase their savings rate by just US$25 a
week or more.
"That would make a huge difference in
their retirement savings, especially for a
young worker," Lucas Vandermillen, vice
president of retirement services for Principal
Financial Group, told CNN Money.
Debt is another huge barrier keeping peo-
ple from saving more for retirement. More
than half of all workers and a third of retirees
surveyed said they have issues managing
their debt, which includes mortgages, credit
cards and auto loans.
How workers can better prepare
This is not the first time EBRI and other
groups have conducted these studies. In
fact, similar savings rates have been reported,
according to USA Today.
VanDerhei says the decade s worth of
research from the EBRI shows that the
biggest predictors of successful retirement
planning is how many years workers par-
ticipate in retirement plans and pensions.
The new study found that 44 per cent of
people who don t have a retirement plan
do not feel confident they have enough to
get them through retirement, as compared
with the 14 per cent with a retirement plan
who feel unprepared.
For workers to feel more prepared, Craig
Brimhall, vice president of wealth strategies
for Ameriprise Financial, told USA Today
people should start living within their means
before retirement --- not just during. "Cutting
back on extras like dining out, designer
coffee and purchases you don t need are
easy ways to jump start a savings plan," he
Vandermillen offered some tips to USA
Today on how workers can be more finan-
cially prepared for retirement, including
automatically calculating exactly how much
is needed to save and setting up automatic
contributions an annuity or savings plan.
Although these calculations might seem
"intimidating and time-consuming," many
tools can make the process easier, said Van-
He also told NBC News, "Amazingly, only
48 per cent of workers surveyed said they ve
taken the time to calculate the amount they ll
need in retirement. Even a small contribution
over the course of someone s career, even
with a moderate rate or return, can provide
a significant difference in the amount that
you have accumulated for retirement."
But perhaps the biggest step workers can
take right now to start saving more is to
simply get started and have patience. "The
earlier you can start saving, the better,"
Brimhall told USA Today.
"Allocating money for retirement can
have the snowball effect meaning it may
not seem like much is happening at first,
but as a result of compound interest, those
savings will eventually build up to form a
large base of cash."
Why working longer to
save more is a bad strategy
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