The Personal Savings Model is Broken
The personal savings model is designed to make you accountable for yourself and yourself only. You as an individual must exercise financial discipline and develop a regular savings behavior all on your own. Unfortunately people have an incredibly difficult time developing a habit of saving their own money.
The household savings rate of Americans (fueled by access to easy credit and the throw-away culture of consumerism) has been on a constant decrease since 1970. Not to mention that 1 in 4 Americans do not have enough savings accumulated to cover at least 6 months of individual expenses. This is alarming because we as a nation are no longer prepared for financial shocks that can come in the form of a sudden sickness, job loss or an unexpected pregnancy. In addition, with a lack of savings it becomes exponentially more difficult to manage household cash flows and stop living from paycheck to paycheck. A lack of personal savings makes people reliant on the credit of banks for day-to-day expenses and reliance on a bank is tantamount to financial slavery.
Collaborative Savings to the Rescue!
In the past few years, we have begun leveraging the power of the masses and have seen how the concept of collaborative consumption can disrupt markets, create new solutions and experiences for users. For instance, it use to be normal for every person to own their own vehicle. Then we shifted towards a sharing model as brought to use by Zipcar. Now we have access to a peer-to-peer solution as evidenced by Getaround.
We have also seen how collaborative consumption can innovate within the Financial sector in the form of peer-to-peer lending. Sites such as Lending Club, Prosper, and Zopa all present an alternative solution to the way in which people can access credit and eliminate the need for traditional credit lending institutions.
I get really excited by the opportunity to apply the concept of peer-to-peer from the collaborative consumption movement to create a more supportive environment for altering the saving habits and behaviors of everyday people. I first witnessed how the concept of peer-to-peer was applied in this manner by some of the poorest people in the world when I was living in South Africa. People who operate outside of the formal financial sector use a variety of financial tools to manage their risk and cash flows. One of the most fascinating of these tools to me were Rotating Savings Groups.
Rotating Savings Groups are an informal group of trusted friends that agree to make regular contributions to each other at agreed upon intervals for a fixed period of time. At each saving interval all members of the group will pay a single member of the group, thus leaving that individual with a positive cash flow injection. The individual receiving all the paid contributions from the group rotates each saving cycle.
As I mentioned earlier, people have an incredibly difficult time developing a habit of saving their own money. A Rotating Savings Group solves this problem by changing the behavior and attitude towards saving money because of the social accountability that exists between group members. Rotating Savings Groups makes an individual view their savings as an expense they owe their close friends. If one member of the savings group does not contribute one saving cycle then the entire group fails.
I believe Rotating Savings Group will fundamentally disrupt they way we save money.