And does it help or hinder better personal financial management?
Inspired by an exchange on Twitter
Financial Stack is a term copied from tech where a Tech or Solution Stack refers to a complex ecosystem of software and services is required to work together to create a platform capable of supporting the needs of the user or business creating it.
A Financial Stack is, therefore, a mix of tools and services that can be used together to achieve financial outcomes whether for a business or for personal finance. Previous generations had no need of a Financial Stack. Their financial services were sourced from the local bank more or less. Life has become considerably more complex now. A typical affluent Millennial Financial Stack might well look like this and could look considerably more complex still:
Bank account (Checking): Chase Sapphire
Savings: Wealthfront, Marcus
Investing: Robinhood, Charles Schwab
Credit Card: United, Chase Sapphire Reserve, Amex Gold
PFM: Personal Capital, Mint
P2P: CashApp, Venmo
The irony of the growth of Fintech is that it has largely driven fragmentation of the customer experience. Whilst there is a lot more choice – check here for a list of FinTech companies in the US it requires a lot more effort to work out which of the 170+ options and in what combinations to work with to optimize your returns.
Even tracking the overall performance of your personal financial life is practically impossible in this model. There are of course apps that seek to help that but generally, they can at best can only tell you if your total net worth went up or down – a number influenced more by external factors like property prices and stockmarket movements than your own decisions.
An apparently simple number such as your earned passive income is absurdly difficult if not impossible to work out. Passive income, defined as the total combined income from deposit interest, dividends and cashback is a powerful guide to how hard your money is working for you. If you are a working professional in the US today you should be making at least $100 a month in passive income. But how would you know – banks do their best to hide their interest returns – the average checking account in the US pays 0.06% and the average savings account pays 0.09%. If you want to know how much you are missing out of in deposit interest you can use this calculator tool here.
Knowing or being aware of your Financial Stack is a good start to thinking about your finances and how you got to where you are. Did you get the Sapphire Reserve Card as soon as you got a decent paycheck to signal to the world you were crushing it? Does it actually make sense economically? Maybe you don’t need such validation anymore. Did opening accounts at a bunch of apps seem pretty promising at the time but you are not really using them or they did not deliver the value they promised. Are you spending too much time trying to sort through the complexity or more probably not nearly enough?
Are you wondering why its all so damn hard and you have better things to do?
If the last sentence resonates then there might be some good news. The last 10 years have seen an explosion of new FinTech companies launching products aimed at specific elements of personal finance – Personal Financial Management, Savings, Bank Accounts, Investing. Many of these companies are now broadening their product portfolios, recognising that consumers don’t necessarily want to be sourcing multiple providers but also value simplicity and ease of use in addition to value for money.
A newly emerging category of company is doing just this – automating and integrating products on behalf of customers. This includes Astra and Unifimoney. In the future, we may well see a diminishing need for consumers to maintain a complex Financial Stack at all but instead enjoy greater returns for less effort instead.