On a technological level, the world has advanced leaps and bounds beyond what most thought was possible as of even a few decades ago. With the rise of the digital world came the beginning of the fall of old industries that were unable to adapt.
One key industry that has been completely transformed by the digitization of the 21st century is finance. Personal finance has changed drastically, with differences in how money is viewed, handled, and transacted. Understanding these changes can impact a person’s relationship with money all while preparing them for the continued evolution of digitized industries.
What is Digitization?
The digitization of personal finance refers to the complete transfer of interacting with money to a digital state. This is an umbrella term that includes modern payment options, financial insights, and even simply mobile banking. In fact, 89% of U.S. respondents to a market report indicated that they use mobile banking, with 70% of those people saying mobile banking has become their primary method of accessing accounts.
This digital age of finance has changed everything from how individuals send money to each other, how companies collect sales, and even how we view our own finances.
How Prevalent are Digital Payments?
One of the most widespread examples of digitization in finance is digital payments. Sending money to another person or to a company used to require cutting a check or handing cash over, but this model has been completely turned on its head. Now, cash sending apps with instant fund access are available, meaning a transaction can be conducted anywhere and anytime.
On a global basis, mobile payments are now used by over 2 billion people yearly. Whether it’s just sending a couple dollars to a friend or buying food from a restaurant, digital payments are quickly becoming the predominant payment method. However, payments are not the sole area that digitization has transformed, rather it has altered our experience with money itself.
The Transformation of The Human-Finance Relationship
It’s no secret that a person’s relationship with their finances can be a source of stress, given it’s directly tied to survival. However, digitization has changed a few of the crucial ways people interaction with and view money:
1. Altered approach to money
There’s something about seeing a physical dollar come out of your wallet that makes you think twice before handing it over. With digital payments, this psychological effect is diminished. By not seeing the dollar leaving it’s easy to imagine that you didn’t really have a transaction, which is something your bank account would disagree with.
On a 10 year basis, consumer spending has increased drastically for a number of reasons with digital payments being a major factor. The convenience of being able to pay for goods without physically seeing the cash has a unique psychological effect that could convince a person to spend more.
2. The investments of wealth
Prior to the digital age, the stock market and investments as a whole were something of a foreign world to the average person. Now, online trading platforms through reputable providers have become prominent and allowed anybody access to the stock market.
For one of the first times in history, the average person has the ability and accessibility to look into ways to grow their wealth.
3. The disappearance of physical cash
When was the last time you carried around large amounts of cash in your wallet when you went to your local mall? For most, they probably can’t remember the last time they made a large purchase in cash or with a check while in person. While cash is nearly impossible to crush, fewer and fewer people are using it for their purchases.
4. Improved asset management
One unique way the digital world has allowed for greater insights into a person’s personal finance is with asset management. Banking platforms and other financial service companies have created apps that allow a person to view all of their accounts in a single place.
By having access to all of this information in one spot, budgeting and expense tracking can become far easier. This helps to bolster the impact a person can have on their personal finance planning.
5. Widespread access to new financial assets
Easier access to the stock market was just the beginning. New financial instruments such as cryptocurrency have emerged in the last decade, but becoming prominent in only the last few years. In some cases, this has complicated finance for individuals, but it has also opened the door to new concepts such as alternative investing.
Pros and Cons of Digitization for Finance
The digital age of finance has its pluses and minuses. All in all, the evolution of the industry is still in its early stages as technology continues to develop. Understanding the key benefits and drawbacks can help individuals make educated personal finance decisions:
Pros of Digitization
- Increased access and visibility to funds
- Quick payments anytime and anywhere
- Better online mobile banking experiences
- Banking has become 24/7
- Your money is protected with varying levels of security
Cons of Digitization
- Spending money has become just a little too easy
- Having access to new investments isn’t the same as understanding those investments
- Personal relationships with money managers are far and few between
At the end of the day, a person’s relationship with their personal finances and how they view money is individualistic. On a wider scale, however, personal finance has digitized and introduced people to new forms of transacting, storing, and viewing their finances. With the digital banking market estimated to surpass $10.3 trillion by 2028, it’s clear that, for better or worse, personal finance will continue to evolve with technology.
Staying flexible for the future of personal finance
Digitization has allowed for greater insights into personal finance and exposure to new asset classes that are still developing today. Taking full advantage of this digitization by adding a digital wallet to your device, making digital payments to friends, family, or companies, and simply investing your wealth online are all modern ways of interacting with your money. Streamline your finances by embracing the digital world and by taking advantage of new technologies as they are released.