Two Sides of Digital Payments
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Digital transactions make the financial lives of young adults more convenient. Consumers can purchase almost anything, or send money to friends and family, with only a phone swipe. Meanwhile, subscriptions for things like music-and video-streaming services, fitness apps and cloud storage, along with ride-hailing and food-delivery platforms and “buy now pay later“ billing options, allow people to put much of their spending on autopilot.
But this convenience has left many young adults with “decentralized” finances—in a sense outsourcing expenses in a way that makes it easy to lose sight of what you are actually spending. And that can make it easy to overspend and hard to budget. A June 2021 report from digital consulting firm West Monroe Partners found that American consumers on average are paying $273 a month in subscription services, up from $237 in 2018. Yet the report, which surveyed 2,500 U.S. consumers, also found that most people thought they were actually spending less on subscriptions than they did in 2018.
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How can young adults guard against “cash leakage?” Here is some advice. While it’s easy to become lulled into complacency by the convenience of free trials and autopayments, you’re the one in control, says Annamaria Lusardi, a professor of economics and accountancy at George Washington University. She advises getting into the habit of checking bank or credit-card transactions at the end of each day, so you have a clearer picture of where your money is going. Otherwise, she says, “it is really easy to lose sight.”
Setting up bank alerts—for example, setting a withdrawal threshold that will trigger a text message or email from your financial institution—can be helpful for the same reason, says Malik Lee, founder and managing principal at Felton and Peel Wealth Management, an Atlanta-based financial-planning firm. “For some people that threshold can be $50, for others it might be $100,” he says. “So whenever that transaction comes through, your eyes at least touch it, especially for those automated bills.” Priya Malani, founder and CEO of Stash Wealth, a financial-advisory firm geared toward high-earning millennials, says many consumers struggle to keep track of their transactions because they have so many payment options at their disposal. “Between credit and debit, cash and Venmo, PayPal and Zelle, the list goes on and that makes it really hard to understand what we’re spending on,” Ms. Malani says.
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When it comes to subscriptions, researchers and financial planners says consumers should be aware these services aren’t static. If you sign up for recurring monthly withdrawals, you also sign up for potential—and sometimes inevitable—price increases and term fluctuations that could affect your finances, they say... Another big factor contributing to cash leakage is that it is often more difficult to cancel a subscription service than it is to start one up.
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https://www.wsj.com/articles/digital-payments-apple-google-venmo-cash-app-11633703107 (subscription)
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