Americans at almost every level of the latter economy struggle to save money, leaving many living paycheck to paycheck. Yotta, co-founded by Adam Moelis and Ben Doyle, helps people win prizes by saving “up to $10 million through weekly random number draws.” Moelis shares his novel perspective on how his startup can use the psychological habits behind playing the lottery to drive financial inclusion through technology.
Friedrich Daso: Before talking about financial inclusion, there needs to be a discussion about financial exclusion. How many Americans are giving up traditional financial services that the rest of us take for granted, and what are the consequences for their economies?
Adam Molis: About 5-6% of US households are unbanked, meaning they don’t have a checking or savings account. Another 17% are underserved, 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 unbanked Americans spend over $180 billion per year in interest charges, or about $3,000 per year per person. This is an enormous sum to pay in fees. Additionally, many of these people will have difficulty accessing credit because they do not build a credit history.
daso: Because you grew up in a family shaped by the financial industry, you found money and business issues easier 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 talk to our customers regularly. This is the best way to stay close to the issues they are facing and how we can help them most effectively. I’ve spent a lot of time studying personal finance more comprehensively, but nothing beats talking to people directly to understand their financial lives.
daso: How did you use the psychology behind lottery ticket spending to drive constructive financial behavior like saving through Yotta?
moelis: A key statistic that makes us start Yotta is that half of Americans struggle with saving, yet Americans spend over $80 billion on lotteries every year. Many people who can least afford to lose money gamble a significant percentage of their net annual income on the lottery.
The fundamental problem is that human nature makes it very easy to do things that are fun in the short run but bad for you in the long run. Conversely, we’re bad at doing boring things in the short term that are good for us in the long run. Saving is boring and doesn’t pay off in the short term, it pays off in the long term. Gambling is fun, but harmful over time.
We wanted to create a product that would make saving fun in the short term, making it easy for people to break the habit of saving and scratch the itch to win big without losing a ton of money buying lottery tickets.
daso: Why aren’t more financial institutions making greater efforts to service or offer financial products to the unbanked?
moelis: It is more difficult and may be less economical. One of the ways banks make money is as a percentage of the deposit size. All else being equal, it is much more economical to acquire a client who can hold a higher balance, which tend to be higher-income clients. It can also be difficult for banks to lend to sub-banks due to the lack of credit history.
daso: How does the realization of the vision behind Yotta culminate in the impact you hope to leave behind on American financial life?
moelis: If we can help people build a financial cushion and help them avoid the costs associated with financial vulnerability, we will succeed. Our goal is to use behavioral psychology to help people make the most of their financial lives. It is very difficult to change the human psychology that has been built up over hundreds of thousands of years, but we can work with these biases to help people make better financial decisions.