New technologies are turning the basic premises of personal money management inside out, and, when it comes to Acorns, this is becoming true right down to the very last spare pennies in our (digital) wallets.

Targeted at millennials, Acorns is the investing app that rounds up purchases to the nearest dollar and invests the difference. That is to say that when you buy a tall caffe latte from Starbucks at $2.95, the remaining five cents from the three dollars is automatically placed in an ETF.

For most of us, spare change simply gathers dust in our back pockets, purses, or down the back of the couch. But Acorns has found a way to make use of these forgotten dimes and put our shrapnel to work, and it does so by seamlessly combining two distinct processes into one – saving and investing.

“Rounding Up” on Purchases

When a user links a credit or debit card to his or her Acorns account, Acorns is able to track the spare change from the transactions and make it available for the user to invest. Round-Ups are viewable right in the app. Users simply choose which ones they would like to invest, or they can change their settings to automatically invest Round-Ups after each purchase.

In the first instance, we may ask – why such small amounts? And the answer is inherent to the question – users won’t miss the money going out precisely because the amounts are so small. And here we see the millennial targeting at play. Electronic payments are becoming increasingly popular amongst tech-savvy young people, who – in their favor of the likes of Venmo, Apple Pay and Google Wallet – view cash as a nuisance. Already, swiping a card for purchases under $5 is the preferred payment method for some 64% of millennials, according to a recent poll by CreditCards.com. Some industry voices are even predicting that the ATM will completely cease to exist within the next 20 years.

Whilst old wisdoms might still try to insist that using cash is the best way to stick to a budget – watching every dollar going out encourages you to spend less – young people find that cash burns holes in their pockets, and when they’ve got it, they spend it. No, the younger generation prefer digital accounts where they can keep track of where their money is going from the convenience of their smartphones. Acorns, therefore, falls naturally amongst these pre-existing millennial habits.

Educating Young Investors

More than 1.6 million people now have an account with Acorns, with 75% of them between the ages of 18 and 34. Free to download, fees are just $1 a month for accounts under $5,000, and 0.25% per year for accounts with more.

Talking to Nasdaq, Acorns CEO Noah Kerner explains that part of the drive behind the business model is to educate young people about the long-term benefits of investing, and that, when making frequent purchases, small amounts soon add up.

“We have this awesome opportunity to educate the next generation at a large scale, which is really a wonderful responsibility. As a company that is getting what we call ‘the up-and-coming generation’ investing early in small amounts, if you are not educating them along the way, it is not really a total service.”

“It spans the gamut from investing, to saving, to building credit, borrowing, all these kinds of things. Now we are making a really concerted effort to integrate all that education content into the actual app so that while you are making decisions about how to invest and how much you invest, you are also learning as you go.”

The idea of rounding up spare change on card transactions is of course not entirely new. Wells Fargo’s “Ways2SaveAccount” and Bank of America’s “Keep the Change” program both round up checking account purchases with the change transferred directly into linked savings accounts. However, these accounts earn almost no interest, so, in effect, they’re little more than glorified penny jars. The difference with Acorns is found in the fact that users aren’t just learning to save, but to invest.

Recommended Portfolios

For ease and to save time, users can configure the Acorns app so that every transaction they make is rounded up automatically – bypassing the on-screen prompt. The app also allows users to make larger deposits into their Acorn accounts – up to $50,000 at any one time. In any case, investing doesn’t begin until the user has accrued $5 in savings, at which point Acorns transfers the funds into a recommended investment portfolio at the touch of a button.

Recommendations are based on the answers users give in response to five questions:

Employment Status – Student, Self-Employed, Retired, Full Time, Part Time, or Unemployed Net Worth Timeframe – How long you plan on saving for Investing Goals – Major purchase, Children, or General Yearly Income

There are five available Acorn portfolios that were developed in part by Nobel Prize winner Dr. Harry Markowitz (responsible for the “Modern Portfolio Theory”). The portfolios are categorized in terms of risk, ranging from “Conservative” to “Aggressive”. Each of the five portfolios consists of the same six ETFs – the only differentiation point between the portfolios being the percentage invested in each ETF. Run by some of the biggest names in finance – BlackRock, Vanguard, PIMCO – the ETFs are as follows:

Large Company Stocks – Vanguard S&P 500 ETF (VOO)

– Vanguard S&P 500 ETF (VOO) Small Company Stocks – Vanguard Small-Cap ETF (VB)

– Vanguard Small-Cap ETF (VB) Emerging Market Stocks – Vanguard FTSE Emerging Markets ETF (VWO)

– Vanguard FTSE Emerging Markets ETF (VWO) Real Estate Stocks – Vanguard REIT ETF (VNQ)

– Vanguard REIT ETF (VNQ) Corporate Bonds – iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)

– iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) Government Bonds– iShares 1-3 Year Treasury Bond ETF (SHY)

A New Generation of Investors

The ETFs all pay dividends, which are automatically reinvested for Acorns users. What is more, Acorns automatically rebalances portfolios in accordance with changes in the market, and, periodically, the company manually reviews user accounts to ensure that they are at target asset allocation.

Acorns is investments made easy. Every time a user shops, a new investment deposit is made, enabling a new generation of consumers to start growing wealth as a by-product of their spending habits. The last word goes to Acorns co-founder Jeff Cruttenden.

"We want to put the tools of wealth-making in everyone’s hands. With Acorns, anyone can use their phone to turn spare change into investment contributions. […] We know that people are good at shopping, but they’re often less savvy about saving and investing. Having an app that automatically rounds up spare change and invests in the background of everyday life allows users to seamlessly build up their savings over time without even thinking about it."

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