Personal Financial Management and Millennials

Delivered March 16th, 2018. Contributors: Erika O., Sunali, Kristen B., Nitin P. and

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Acquisition Rate/Cost for Freemium Personal Financial Management Products

While the average customer acquisition cost of companies offering freemium personal financial management products is not readily available in the public domain, the respective customer acquisition costs of Mint, MoneyLion, and Acorns indicate that the average cost could be in the range of $1 to $5. All three companies operate in the personal financial management space. Both Mint and MoneyLion offer a free app with advanced features that can be accessed for a fee, while Acorns offers an app that can be accessed by college students for free and by other users at a premium.
FINDINGSBased on the following information I have gathered during research, it appears the customer acquisition cost of companies offering freemium personal financial management (PFM) products is more or less in the range of $1 to $5. Neither the average customer acquisition cost of companies in the freemium personal financial management space nor the respective customer acquisition costs of Digit, Clarity Money, and Qapital could be located in the public domain, but the customer acquisition costs of Mint, MoneyLion, and Acorns give us an idea of what the range is.
MintIn an article published in 2016 by marketing marketplace YellowBulbs, it was reported that PFM service provider Mint was able to bring down its customer acquisition cost to $1 through a content-oriented strategy. At the center of this strategy is the blog MintLife where the company shares tips, infographics, and videos relating to personal finance. Content on this blog, which was launched in 2007, became very popular and was frequently mentioned on news aggregators Reddit and Digg. Mint's creation of the online badge "I want Mint" also helped in the company's user acquisition efforts, as the badge, which users embedded on their blogs and pages, essentially served as free advertising. Intuit acquired Mint in 2009 for $170 million.

While the app offered by California-based Mint is free, Mint has credit monitoring alerts that users can subscribe to for a fee. According to Investopedia, this service costs $16.99 a month. 
MoneyLionAccording to an article published in 2017 by finance publication Tearsheet, the customer acquisition cost at New York-based personal finance platform provider MoneyLion is around $5 or less. At the time of the article's publication, MoneyLion, which was launched in 2013, already had around 1.5 million customers. Over 30% of its customers are acquired through word-of-mouth.

The MoneyLion app is free, but MoneyLion Plus, which offers a "better way to borrow, save, and invest" is not. MoneyLion Plus membership costs $29 a month, but members can get it for free if they log in frequently to the MoneyLion app. Users get a $1-cashback each day they log in to the app.
AcorNsBased on an article published in 2017 by technology market intelligence provider CB Insights, personal finance service provider Acorns has a customer acquisition cost of $4.50 in Australia. The company was able to achieve this relatively low customer acquisition cost by making the most of social sharing. It has a strong referral program where active users see $5 get deposited to their Acorns account for every new customer they refer. The user interface for referrals is also designed in a way that user experience is optimized. In just a period of three years, Acorns was able to grow its active user base to 2 million.

The Acorns app is "free for college students with a valid .edu address for up to four years from date of registration." To use the app, other types of users will have to pay $1 a month or 0.25% a year depending on the amount of money they hold in their accounts. Those with accounts holding at least $5,000 will need to pay a fee of 0.25% a year, while those with accounts holding less than $5,000 will only need to shell out $1 a month. Acorns' headquarters is in California.
Additional IndustriesIn the course of my research, I came across the average customer acquisition costs in the B2C and banking & insurance industries.  I decided to present them here to highlight how low the customer acquisition cost of companies in the freemium PFM space is. According to an article published in 2017 by enterprise call tracking service provider Convirza, the B2C and banking & insurance industries have an average customer acquisition cost of $149 and $303, respectively. 

Based on the Tearsheet article mentioned above, on the other hand, large retail banking businesses might spend $1,500 to $2,000 to acquire a customer, and for startups in the financial services industry, the cost could range from $5 to around $300.
CONCLUSIONEven though there is no pre-compiled information in the public domain that indicates the average customer acquisition cost of companies offering freemium personal financial management products, the corresponding customer acquisition costs of Mint, MoneyLion, and Acorns suggest that the typical cost could be somewhere between $1 and $5. The three companies are all players in the personal financial management arena. Both Mint and MoneyLion provide basic features for free and advanced features at a premium, while Acorns offers pricing that varies from free to 0.25% a year depending on the type of user.

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Millennials - Household Income greater than $50K

According to recent research findings, 23% of millennials earn a household income above $50k. However, for the purpose of calculating an accurate average income of those who earn more than $50k, a more detailed breakdown of income from a report by Moneyunder30.com was used. While this report is limited to the 20-29 age group, the breakdown of 6 income levels showed that 26% of this age group earned more than $50k and that the average income of those earning above this level was approximately $73k (based on weighted averages).
methodologyDespite extensive searching, I was not able to find any recent and in- depth research on the earning patterns of 21-34 year-olds. This age range is almost identical to the Pew Research definition of millennials, which includes those aged 20-35 (as of 2016). However, due to limited information on the exact age range specified, the research scope had to be limited to the 20-29 age range. 

While I was able to find information on the income distribution among millennials and the overall average, there was no specific data available on the average within individual income brackets. Hence, the average income of those earning a household income above $50k had to be triangulated using weighted averages based on available information. 
millennials with household income above $50kAccording to Forbes, millennials earn an average household income of $40,581. According to a study by Zerofinance.com, 77% of millennials earn an annual income less than $50k, which means that 23% earn more than this figure (100-77). These findings were confirmed by a 2015 report by Moneyunder30 which shows that 26% (12+8+4+2) of 20-29 year-olds (which is only a slight deviation from the millennial age range) earn more than $50k. The findings are as follows. 

$50k-$75k- 12% 
$75k-$100k- 8% 
$100k-$150k- 4% 
more than $150k- 2% 
average household income above $50kSince there was no pre-compiled data on the average income within the $50K+ income bracket for millennials, this figure was triangulated using the Moneyunder30 report referenced previously. 

Using the percentage of the income distribution as the weight for each of the 4 income brackets, an average was calculated based on the lower income of each category. According to the weighted average calculator, the average income of the people that earn more than $50k is $73,077. Each of the weights (percentage of income distribution) have been multiplied by the lower income in each income bracket and this amount has been divided by the total weight. The calculation is as follows:

=(12×50000+8×75000+4×100000+2×150000) / (12+8+4+2) = =$73,077
conclusionIn conclusion, 26% of 20-29 year-olds in the U.S. earn a household income above $50k. Of those earning more than $50k, the estimated average household income is about $73k.

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Millennials - Savings rate and average income for those earning greater than $50K

Millennials, defined here as those aged approximately 18-34 years, are not saving at high rates, and many have no money set aside for savings or for retirement. Among those earning more than $50,000 per year, most have less than $1,000 total saved. 

It is generally agreed upon that those born between the 1980s through mid-1990s are considered millennials. Based on available reports on millennial investing we have considered the age range of 18-34 years to represent millennials for the purpose of this report. 
ANNUAL SAVINGS RATES
Millennials are not saving at a high rate and earning a higher income does not automatically lead to higher savings rates. In fact, a survey from MyBankTracker among those aged 18-34 years found 50% of survey respondents earning between $100,000 and $149,999 reported not saving anything. Moreover, 22% of respondents earning over $150,000 per year said they were not putting anything away for retirement each year. Those who are saving are not saving much; over a third of millennials were found to be adding $4,999 or less to their retirement fund annually. The limited savings in the higher salary range is most likely due to high student loans from graduate degrees.

A Retirement in America Survey conducted by Ramsey solutions had a brighter outlook on savings rates, with millennials performing slightly better compared to Baby Boomers and Generation X, considering they have more time to invest in savings before retirement. Of the millennials who reported actively saving for retirement, 39% set upside up to 9% of their income for retirement, which would amount to $5,000 of the average annual millennial household income of $55,200. 
DIFFERENT SAVINGS PATTERNS AMONG MILLENNIALSMillennial parents appear to be very good at saving, according to a NerdWallet study surveying over 2,000 American adults, which found employed millennial parents are more likely to contribute to retirement savings than non-parents. In fact, 84% of millennial parents surveyed said they were contributing to retirement savings, while only 69% of non-parents were doing so. Millennial parents contribute a median of 10% of their income to retirement savings. This is higher than a savings of 8% of income for Generation X (aged 35 to 54 years), and savings for working baby boomers (over 55 years), who are saving only 5% of their income. However, it should be noted that in most instances the dollar amount millennials are saving is smaller because they are typically earning less than older generations.

Age does not seem to result in much higher savings. The majority of both younger (18-24 years) and older (25-34 years) millennials have less than $1,000 in savings. However, the proportion of millennials with more than $20,000 in savings is about twice as much in the older group compared with the younger group.

Men appear to save larger amounts than women. In the MyBankTracker survey, 12.2% of men said they were able to save at least $15,000 per year, compared to 6.7% of women, though this is likely reflective of the pay gap. This difference was verified in another report, which found 56.7% of millennial women had under $1,000 saved, compared to 46.5% of millennial men.
TOTAL SAVINGS BALANCE
The amount of total savings for the average millennial is very low. Among young millennials, those aged 18 to 24 years, 67% have less than $1,000 in their savings accounts, with 46% having no savings at all. The breakdown continues as follows: 15% had $1,000 to $4,999 saved, 5% had $5,000 to $9,999 saved, and 13% had $10,000 or more saved. This trend is the same among older millennials, with 61% having less than $1,000 in their savings account, including 41% with no savings at all. More of the older millennials have higher savings; 20% have saved $10,000 or more. 

A promising statistic found that from 2016-2017 the percentage of younger millennials with $10,000 or more in a savings account has jumped from just 8% to 13%.

MILLENNIALS EARNING OVER $50,000 ANNUALLY
A survey conducted by Google Consumer Surveys in November of 2015 provided information on savings by income group. Most millennials earning $50,000 to $74,999 annually have less than $5,000 saved in total, with 48.4% having less than $1,000 saved. On the other end of the savings' spectrum, 18.4% of millennials in this income group saved more an $20,000. 

For those earning between $75,000 and $99,999 savings appeared better, with only 31.2% having less than $1,000 saved, and a reported 25.3% with more than $20,000 saved. 

Among millennials in the income bracket of $100,000-$149,999 a large percentage (29.3%) still had under $1,000 saved, but the percentage with $1,000-$5,0000 declined, while 36.2% had over $20,000 saved. 

Among those making $150,000 or more annually, 28.6% had under $1,000 saved, and 50% had more than $20,000 saved. It seems clear from this data that savings are still very low for a high proportion of high-income earners, though, as would be expected, those with higher earnings were able to save more in general. 
CONCLUSION
Millennials face a tough economic landscape for saving, with more than 40% of millennials not saving for retirement at all. A likely culprit of savings issues is high student loan debt. Even among those earning over $50,000 per year, most report only having $1,000 total in savings. 

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Millennials - Goal Based Savings Apps

Financial management apps like Digit, Clarity Money, Qapital, among many others, help their customers to make better and smarter financial decisions to make the most out of their money by providing them the latest technology based platforms to "cancel and lower bills, get a better credit card, get their credit score and create a savings account," just with a tap on their smartphones.

The research below provides a detailed analysis on finding the percentage of US-based millenials between 21 to 34 years with household incomes greater than $50K, that are using a goal based savings app. However, due to the unavailability of public sources, the percentage of such users could not be found.
METHODOLOGYAfter an extensive search through varied sources in the public domain, which includes statistical sources like Markets Research, Statista, Markets-And-Markets etc., no freely available research report regarding the percentage of millennials (21-34 years old) that are earning $50K and using goal based savings apps, like Digit, Clarity, Qapital, etc., could be found.  However, two third-party data services, namely, AppTopia.com and AppAnnie.com, have been found that could provide the required information regarding the usage of the apps. The reasons for unavailability of the information could be many, but it is likely that goal-based savings apps are new (with most of these originated around late 2014 or early 2015) to the market, hence, information regarding the market share of this segment may not be properly defined. Moreover, their recent origin might be an important reason for unavailability of any research report that covers the CAGR count or any progressive analysis of the usage of these apps. However, to estimate the population of US-based users of apps some triangulation have been carried out in the form of two-folded analyses. To carry out the required calculations the Google Play store data and press releases of the apps were relied upon, and which have been covered in the subsequent headers. Despite all the triangulation, no information regarding the total as well app-specific market share, and the global or the competitive landscape in the goal based saving app market, etc., could be found due to unavailability of the data points in public domain. The detailed triangulation along with the required analyses are presented below. 
TRIANGULATION
ANALYSIS # 1  
According to the U.S. Census Bureau, Current Population Survey, 2017, total male population between 22 to 24 years and earning greater than $50K is 4,320,000, and the total female population in the same category is 4,080,000. So, the total US-based total population in the same category is 8,400,000 
(4,320,000 + 4,080,000 = 8,400,000). 

According to the U.S. Census Bureau, Current Population Survey, 2017, total male population between 25 to 29 years and earning greater than $50K is 8,054,000, and the total female population in the same category is 7,302,000. So, the total US-based total population in the same category is 15,356,000 
(8,054,000 + 7,302,000 = 15,356,000). 

According to the U.S. Census Bureau, Current Population Survey, 2017, total male population between 30 to 34 years and earning greater than $50K is 7,727,000, and the total female population in the same category is 7,252,000. So, the total US-based total population in the same category is 14,979,000 
(7,727,000 + 7,252,000 = 14,979,000). 

Thus, the total population of US-based millennials between 22 to 34 years and earning greater than 50K can be estimated be 38,735,000.  
(8,400,000 + 15,356,000 + 14,979,000 = 38,735,000)

According to Worldometers, the total population of the US in 2017 was 324,459,463. Moreover, according to Statista, the total number of smartphone users in the US was 224.3 million in 2017. So, the percentage of smartphone users in the US in the same year can be estimated to be 69.1%. 
(224.300,000 / 324,459,463 X 100 = 69.1%)

Using the preceding data points, the total population of US-based millennials between 22 to 34 years who are earning greater than $50K, and using smartphones can be estimated to be 26,765,885
(0.691 X 38,735,000 = 26,765,885). A certain percentage of this population is likely to be using goal-based savings apps in the US. 

ANALYSIS # 2 
According to AppBrain.com, Digit Save Money Automatically app by Hello Digit, Inc. has been installed by an estimated 200,000 people across the globe. The app is available in Google Play and is active since September 2016. The app is popular and ranks among top 10% of apps available on the Google Play store in term of the total number of installs. 

According to Business Wire, the Clarity Money app had 500,000 users until September 4, 2017.

According to Forbes, the Qapital app had approximately 190,000 users across the globe until April 2017.

Using the preceding data points, an average number of downloads of the 3 most popular goal-based savings apps (Digit, Clarity Money, and Qapital), across the globe, can be estimated to be 296,667.  
[(200,000 + 500,000 + 190,000) / 3 = 296,667]

END RESULT
Connection between the results of both the analyses, however, can't be established despite a thorough research through authentic sources available in the public domain. 
CONCLUSIONIn conclusion, the research above highlights important information regarding the total population of US-based millennials between 22 to 34 years who earns greater than $50K, and are using smartphones which is estimated to be 26,765,885. Additionally, the research also provides information about an average number of downloads of the three most popular goal-based savings apps which is estimated to be 296,667. However, due to unavailability of requisite sources in the public domain, the research fails to establish the necessary connection between both the data points in order to calculate the percentage of the US-based millennials that are currently using these apps.