The Rise of the Gig Economy and Unmet Financial Wellness Needs
By: Dave Farber
Tags: Innovation, Financial Services, Business, Gig Economy, Fintech Startups

The Rise of the Gig Economy and Unmet Financial Wellness Needs Dave Farber Follow Sep 8 · 6 min read

In late August Uber and Lyft nearly halted their operations in California in response to a court’s order to reclassify their drivers as employees rather than independent contractors. But this public showdown between ride-sharing companies and lawmakers is part of a much larger issue. Uber and Lyft drivers are currently treated as gig workers — those who work for themselves rather than as employees of a business. While estimates vary, there could be nearly 70 million gig workers in the U.S., which would be more than one third of the U.S. workforce.

Part of the reason that we struggle to estimate how many gig workers are out there is that beyond determining whether someone is an employee or an independent worker, there are variations in what independent work can look like. Gig work can be part-time or full-time. Gig workers can set up their own businesses or gain work via platforms like Uber. Gig workers may rely entirely on their independent work or they may also be traditional employees at the same time. They could pay their taxes in entirely different ways, and some likely avoid paying taxes altogether. Things pretty quickly get complicated.

Although there are countless different ways to classify gig workers, some of those classifications really do matter. Beyond tax implications and operations implications for platforms that connect gig workers with customers, the needs and lifestyles of gig workers can vary substantially. Those who don’t have a full-time job with a traditional employer may lack access to important benefits and consistency in their income. Based on hundreds of conversations with independent workers, I’ve identified the most pressing challenges faced by gig workers that companies can help address. And these challenges aren’t limited to those in the gig economy. They’re problems that many Americans are currently struggling to solve.

Financial awareness. If you spend enough time in financial services, you’ll often hear the refrain that only about half of Americans are financially literate; I often hear that number go as low as 30%. And this isn’t some sort of “gotcha” question where consumers can’t answer a trick question about compound interest. Many of the gig workers I interview talk about how they have trouble controlling their spending because they really don’t have a good sense of what they’re spending their money on. They also express frustration that they need a better credit score, but they don’t know what factors really affect their score or how to get it where they want it.

Beyond the problems folks tell me about directly, digging a little deeper often reveals that consumers are paying high annual fees or interest rates on their credit cards. In many cases, there are better deals out there, but consumers don’t know what a “good” rate is, where they would seek out a card with more attractive rates, or whether they have the ability to negotiate the terms of the cards they currently have. More recently, I’ve also heard many consumers talk about their struggle with their monthly debt payments — especially student loan debt — having not been able to envision what percentage of their income would go to repayment when they decided to take on the loan or debt.

A little knowledge in the financial wellness space could go a long way. Consumers don’t need tomes of explanation about tax codes and investment strategies. They need just-in-time awareness of how they’re spending their money and how their choices will impact their life in the future.

Income stability. Many consumers will tell you that they simply need more money. It’s not that they don’t see the need for emergency savings or retirement investments, but rather that they simply have nothing left once they’ve covered the essentials. This problem is even more pronounced for gig workers, who may not have consistency in their income. For many gig workers, some weeks will be better than others, and there may even be stretches where they have no income at all. They regularly need to figure out how to cover their expenses until their next paycheck arrives.

This creates two separate challenges that can be addressed. The first is creating opportunities to increase income. Financial services companies help people save or invest money they already have, but they rarely focus on helping people increase their earning potential. That space has been heavily ignored by the industry. The second is in introducing better short-term credit and lending products. While this space has historically been home to predatory lenders, a number of startups have started introducing consumer-friendly products to help address this piece of the puzzle including Mission Lane (fair and affordable access to credit), Prosper (low-interest loans through P2P lending), and Upstart (fast and affordable loans for a broader audience).

Financial wellness providers can also differentiate themselves in this space by considering the emotional needs that exist as well. Beyond the need to increase or stabilize their income, nearly a third of gig economy workers landed in that position out of necessity, often having lost a job or faced a major life hurdle. For those workers, there’s often a desire to get back their old lifestyle, do more of the fun things that they have been forced to give up, or stop stressing about finances on a daily basis. While there may be functional solutions for those needs, recognizing the emotional struggle can go a long way toward building a connection.

Practical guidance. Even consumers who need to increase their income or its stability can often do more to save and avoid future hardships. For some, it’s simply about overcoming that initial hurdle; they need to get started. Here we’re talking about the 33% of Americans who have nothing saved for retirement. Once that first dollar is saved, the follow-on work will get a lot easier. Then there’s the next 23% of Americans who have under $10,000 saved for retirement, the 44% who couldn’t cover a $400 emergency, or the 43% of student loan borrowers who aren’t making payments toward their loans. These folks have often made some progress, but they need real guidance on how to set and stick to a budget, or how to determine where their money is going and what funds could be better spent. Those individuals need someone who can spend the time understanding their finances, lifestyle, motivations, and values to develop a concrete plan for how to turn things around.

The financial wellness space is a hot spot for innovation right now, but there’s still a lot of room to do more. By better understanding the different segments of the gig economy and the unmet needs within those segments, companies can generate real value for a big portion of the workforce.

Dave Farber is a strategy and innovation consultant at New Markets Advisors. He helps companies understand customer needs, build innovation capabilities, and develop plans for growth. He is a co-author of the award-winning book Jobs to be Done: A Roadmap for Customer-Centered Innovation.