John Waupsh is Chief Innovation Officer of Kasasa, an award-winning financial technology and marketing technology provider. Ahead of his session at FinovateSpring where John will talk about the role of the branch in a digital world, he discusses how loans should help people save for retirement.
Building retirement savings is not a strong suit for many Americans. According to a 2018 survey by GoBankingRates, more than 40 percent of Americans have less than $10,000 saved for retirement, including the 14 percent with $0 saved for retirement. Financial planning experts frequently recommend having at least eight times your salary saved for your post-career future, and with life expectancy continuing to increase, the minimal recommend savings will likely rise even higher.
It’s so easy for consumers to put off saving for retirement. Their last day on the job seems so far away, and bearing today’s financial burdens like bills and loan payments often means restricting, reducing or simply never beginning to save for tomorrow.
But there’s a better way.
Historically, consumers have often felt like they must jump through three hoops before starting to save for retirement or increasing investments in their future. First, they must be meeting their primary needs like paying power bills and buying groceries. Second, many want to build cushions of both emergency and “fun money,” in case the need arises to pay for a last-minute home repair, an unforeseen medical expense or even a spontaneous weekend vacation. Last, many want to pay off their debt before beginning to save or increasing retirement contributions. These second and third hoops are where many consumers are missing out.
Despite the fact that most Americans want to pay off their loans faster to increase retirement savings, those that meet their primary needs rarely pay extra toward their monthly loan payments because it’s money they can never get back if they need or want it later.
That’s changing with the Kasasa Loan. It is the only loan product that can serve as a tool for building savings through the ability to take-back extra payments.
A loan that allows borrowers to pay ahead to reduce debt, but take that extra back if they need it, eliminates the fear of parting with ‘extra money,’ enabling the consumer to make better financial decisions like paying down debt faster. And when debt is paid down sooner, consumers are freed up to boost retirement savings earlier, when it really counts due to the power of compound interest. Consumers like this option. In fact, according to a recent study, nine out of ten consumers prefer a loan with take-back functionality over comparably priced loans, and 98 percent of consumers say they would refinance existing debt at the same rate to have the flexibility of taking back their extra payments.
In addition to flexibility, visual transparency is something that the lending world has been lacking until now. The innovation of sleek, mobile-friendly dashboards in personal financial management (PFM) apps have long helped consumers budget and visually understand their money. Consumers should now expect the same features from a loan. Having the ability to actually see the impact of extra payments enables borrowers to comprehend better the impact of paying down their loan faster and therefore, make smarter financial decisions for their future.
As Baby Boomers, Gen Xers, Millennials and even Generation Z inch closer to retirement, there is an opportunity for these consumers to make better borrowing decisions by choosing a loan that is extremely flexible, easy to work with, and visually transparent. In the past, taking out a loan has prevented consumers from saving for their future. Now, it is possible for them to borrow in a way that not only doesn’t hurt their retirement funds but actually helps them save.