How $5 a day could help close the wealth gap

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Noah Kerner, CEO of Acorns, will appear at Yahoo Finance’s All Markets Summit on September 20.

Our country was built on the American Dream—the notion that every one of us has an equal opportunity to pursue success and prosperity based on hard work and talent. But the widening wealth gap is putting that ideal in peril.

A new report from the Economic Research Institute shed light on “the new gilded age”: In 2015, the top 1 percent of families earned an average of 26.3 times as much as the bottom 99 percent. They took home 22 percent of all income, compared to a low of 9.2 percent in 1973.

Federal policies, low unionization rates and sky-high executive compensation all contribute to the discrepancy. But according to the Congressional Research Service, inequality in saving and investing behaviors are the No. 1 reason why the rich are getting richer, while most Americans are stuck in a paycheck-to-paycheck cycle.

The Center for Retirement Research found that in 2016, a quarter of households with Americans aged 55-64 in the lowest income bracket had a 401(k)—with a median balance of $26,700. Meanwhile, 70 percent of those in the upper echelon participated in a 401(k), with median savings of $780,000. The nonpartisan Tax Policy Center reports that for 99 percent of taxpayers earning under $500,000, salaries and wages made up 75 percent of their income. But for the top income bracket, salaries and wages accounted for just 18 percent of total earnings, with nearly half streaming in from capital gains.

Is it easier to save $5 a day or $150 a month?

The financial services industry largely reinforces investing inequality by catering their offerings to the affluent. But if you don’t have a country that’s providing equal opportunities and taking care of the people who are struggling, with companies supporting everyone, where do you end up?

That’s why our mission at Acorns is to look after the best financial interests of the up-and-coming, by making investing accessible to everyone. Even if you can’t afford to invest a lot, small amounts—even just $5—can add up over time. After all, from acorns, mighty oaks do grow. No matter your net worth, you have unlimited potential.

To further that mission, we run experiments to figure out the best ways to help people save and invest. A new study yielded exciting insights into reversing the wealth gap.

Researchers invited one group of 1,772 Acorns users (with annual incomes ranging from less than $25,000 to more than $250,000) to save $5 a day, and another group of 1,744 users to save $150 a month. The outcome was incredible: While the two amounts are mathematically equivalent, 30 percent of participants started saving when it was framed as a daily contribution, versus just seven percent who were prompted to make monthly contributions.

It makes sense: Five bucks a day might not seem like a big deal—carpooling or taking the train instead of Lyft, making your breakfast at home one day—whereas $150 a month can feel like a major bite out of your budget—say, a phone bill.

Even more importantly, with a daily frame, those who made less than $25,000 were just as likely to put money aside as six-figure earners. “By making big and difficult decisions, such as saving $150 a month, feel small and easy, such as saving $5 a day, we were able to completely eliminate the income gap in savings behavior,” says study author Shlomo Benartzi of UCLA, who also chairs the Acorns Behavioral Economics Committee.

Our goal at Acorns is to help close the wealth gap by having 100 million Americans saving and investing every day. To that end, we’re making it seamless for the up-and-coming to master the three keys to building wealth.

First, save and invest as early in life as possible to take advantage of compound interest.

Next, save and invest often—that means making recurring contributions as frequently as you can, which you can do using our $5 daily recurring investment option (though you’re free to set up any investing interval you’d like). Particularly for first-time investors, saving on a regular basis and seeing your money grow builds confidence and serves as a powerful motivator to keep on going.

Finally, save and invest always. Stay the course, and don’t pull out of the market as a knee-jerk reaction to the day’s news. History has shown us that, given enough time, stocks have always trended up.

If you invest early, often and always, it doesn’t matter how much you start with—you’ll see tremendous results. The future is yours. Go get it.

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