Free Enterprise Staff  | March 15, 2016

Save Money Without Even Trying

Are you saving enough of your money? For such a seemingly straightforward question, it’s pretty difficult to answer. How much is enough? What does ‘saving’ actually mean? For anyone who struggles with the concept, there’s a company you need to know about: Digit.

Founded by Ethan Bloch, Digit takes the complexity out of saving. It does this by withdrawing money automatically from your bank account, taking relatively small amounts of money and transferring them to an individual’s Digit-run savings account. Every time Digit withdraws money, it sends users a text message.

Developed over the course of a few years, Digit protects against overdrafts by carefully analyzing a person’s unique financial situation. Over time, the savings can become substantial. Finance has always interested Bloch, who also co-founded and sold another company to Demand Force earlier in his career.

“When I was around the age of 13, I used to day trade using money I had made from my bar mitzvah,” Bloch tells Free Enterprise. “But then in 2001 when the recession hit, I ended up losing everything. That set me on what became a lifelong curiosity with finance.”

What happened between then and now? To learn more about the company, its founder’s background, and how it’s changing the way people think about saving, we recently spoke with Bloch from his office in San Francisco.

What happened after you sold your first company and were working at Intuit? 

After a few months of working at Intuit, I came back to finance. I realized it was something I could work on every day, and it gave me meaning. I spent the next seven or so months at Intuit just thinking, reading, and figuring out what my hypothesis was, and what I could do to help the financial health of America.

I arrived at this belief that the reason we have really poor financial health in this country is that the tools have really left us behind. They don’t really take into account how the human brain works, in terms of what we know about the brain now. They don’t look too different than the basic tools merchants had 500 years ago. And yet every single citizen has to make a ton of complex financial decisions during their lives.

I started to develop this idea that I wanted to build a service that could automate a large portion of this financial drudgery we’re faced with every day and make it more approachable. It’s not someone speaking in jargon and handing you a paper in fine print that you’re never going to read. After a lot of trial and error, I was able to create an automated service that would talk to people through text messages to tell them what’s going on.

When did Digit launch and how has it changed over time?

We had our first beta user in January of 2014. But I had been working on it full-time since November 2012.

We went through a lot of ideas before we arrived at Digit. One of the biggest things that changed was that originally Digit would ask you before it would move some money on your behalf. What we saw, though, was that people would generally say yes the first time; the second time they’d say no; and the third time they’d just ignore it.

We started talking to people who were testing the service, and they said, ‘Don’t ask me to approve every transfer. Just do it.’ And it dawned on us, so we removed that question, and that’s when the product really started to work. We made that change during the first quarter of 2014.

What are some of the mistakes people commonly make when trying to save more money?

Most people just don’t do it. That’s really the first and most important thing. The first challenge is that most people don’t set up an automatic recurring transfer because they’re not sure if they have the extra funds to do that. Roughly 65% of people 18 to 40 don’t save any money at all, and I understand why. Life’s hard enough without having to constantly think about your finances. It can be so daunting.

How does Digit know how much to withdraw from a user’s account? 

Digit takes four main things into account when it calculates how much a person should save. It looks at how much is in your checking account, and it’ll ask itself if that’s high or low based on averages. It will look into when bills are coming due, and it looks at when you’re going to get paid next—regardless of whether you’re someone who gets paid regularly or irregularly. It also analyzes how you’ve been spending money recently.

How often does it transfer money?

It varies by user, but we’ve seen across all users that they see savings roughly every three days.

What’s the typical user profile, and what are they using the service to save for?

The average user is 27, single, and makes around $60,000 per year. It’s pretty evenly split between male and female.

There are a lot of users who will use the savings to pay down debt, or save for something. I mean it doesn’t make a lot of sense to save if you have a substantial amount of debt. It really makes sense to pay that debt down. Still, Digit can really be used for whatever people have in mind.

Most people use Digit for short-term planning; some folks use it for longer, but most use it because they want to build a safety net, so if an emergency comes up they’ll have it when they need it. People are using Digit to help pay down their student loans or credit cards. There are definitely people who use Digit over the long-term, so they’ll use it to save for an upcoming trip instead of putting it on a credit card.

What effect is Digit having on its users?

From what we’ve seen so far from the data and in talking to customers, it’s very clear that Digit absolutely provides short-term liquidity that users otherwise wouldn’t have had were it not for the service. We see it’s providing a really important service, one that we are confident will continue to evolve and grow in the future.