Americans at nearly every rung of the latest economy are struggling to save money, leaving many living paychecks. Yotta, co-founded by Adam Moelis and Ben Doyle, helps people win prizes by saving money “up to $10 million through weekly raffles.” Moelis explains his new perspective on how his startup can leverage the psychological habits behind lottery gambling to drive financial inclusion through technology.
Frederick Daso: Before we can talk about financial inclusion, there needs to be a discussion about financial exclusion. How many Americans are cutting out the traditional financial services we take for granted, and what is the impact on their economic lives?
Adam Moelis: About 5-6% of households in the United States are unbanked, meaning they do not have a checking or savings account. Another 17% are underbanked, meaning they have a checking or savings account but rely on payday loans, check cashing services and other alternative financial products.
The main problem with using alternative financial products is that they come with exorbitant fees and interest rates. It is estimated that unbanked and underbanked Americans spend more than $180 billion a year in interest charges, or about $3,000 a year per person. That’s a huge amount to pay in fees. On top of that, many of these people will have difficulty accessing credit because they don’t have a credit history.
Daso: Since you grew up in a family rooted in the financial sector, topics related to money and the economy have come more easily to you than others who may not have had access to a similar environment. . How do you anchor yourself in the shoes of your financially excluded customers to make Yotta an inclusive FinTech product for them?
Moelis: We discuss regularly with our customers. It’s the best way to stay close to the issues they face and how we can serve them most effectively. I’ve spent a lot of time studying personal finance more generally, but nothing beats talking to people directly to understand their financial lives.
Daso: How have you leveraged the psychology behind lottery ticket spending to drive constructive financial behavior, such as saving through Yotta?
Moelis: A key statistic that drives us to start Yotta is that half of Americans struggle to save, but Americans spend over $80 billion on lotteries every year. Many people who can least afford to lose money play the lottery with a large percentage of their annual net income.
The fundamental problem is that human nature makes it very easy to do things that are fun in the short term but bad for you in the long run. Vice versa, we are bad at doing boring things in the short term, even if they are good for us in the long term. Saving is boring and doesn’t pay off in the short term, but pays off in the long run. Gambling is fun but is harmful in the long run.
We wanted to create a product that makes saving fun in the short term so people find it easy to get into the habit of saving and scratch the itch for the chance to win big without losing a ton of money buying tickets. of lottery.
Daso: Why aren’t more financial institutions doing more to serve or offer financial products to the underbanked?
Moelis: It’s harder and can be less economical. One of the ways banks make money is as a percentage of the size of deposits. All other things being equal, it is much more economical to appeal to a customer who can maintain a higher balance, which tends to be higher income customers. It can also be difficult for banks to secure loans to underbanked people due to lack of credit history.
Daso: How does realizing the vision behind Yotta lead to the impact you hope to leave on the financial lives of Americans?
Moelis: If we can help people build a financial cushion and help them avoid the costs associated with financial vulnerability, we will have succeeded. Our goal is to use behavioral psychology to help people get the most out of their financial lives. It is very difficult to change human psychology built over hundreds of thousands of years, but we can work with these biases to help people easily make better financial decisions.