I was recently attending a Florida Realtors Instructors workshop (I’m a real estate CE instructor). One of our guest speakers came in to talk about smart home technology. While I initially wasn’t interested, he told a very powerful story about his own experience with smart home technology and how it helped his parents when they relocated to Florida. His story, outlined below, really made me think about how smart home technology could impact personal finance.
At my first opportunity, I tried to research smart home technology and its impact on personal finance. I couldn’t find a single article out there. Smart home technology has been around for a little while, but while everyone is caught up in the functionality of it, it doesn’t appear that many people have considered its effects financially.
1. Long Term Care. This probably isn’t the first thing that comes to mind when thinking about smart home technology and personal finance. But here’s where Jerry’s story comes in.
Jerry is a very successful real estate agent in Long Island. A few years ago, Jerry’s parents asked him to help them relocate to Florida to get out of cold New York winters. He helped them relocate to a 55+ community near the Tampa Bay area.
A while later, Jerry noticed that his dad would often forget things. Although it was pretty subtle, Jerry knew something was wrong. It turned out that his father had started developing dementia. As a result, his father was prescribed medication. The major problem was ensuring that Jerry’s father would regularly take the medication, especially when Jerry’s mother was out of the house. Because Jerry was located thousands of miles up in New York it became difficult to monitor his dad’s medication.
Enter smart technology. Jerry bought his parents a HERO. HERO is a smart appliance that stores, organizes, and manages pills. Additionally, HERO notifies Jerry by text every time his father takes his regularly prescribed dose.
That’s only part of the story. After all, long term care, whether it’s in home or in a care facility, is expensive. And Jerry was worried about the cost of having to care for his father, particularly since his mother still worked part-time. However, living in a 55+ community, Jerry’s parents are surrounded by a network of friends who:
- Understand what it’s like to care for someone with dementia
- Are supportive of what Jerry’s mother is going through
- Are willing to help out with care, as needed
Make no mistake—I don’t believe that Jerry has completely eschewed skilled nursing care for his parents in the long term. But he has bought his parents some time. How much isn’t known. It could be a year, or several. But it could be enough.
For many families, the affordability challenge of long term care lies not in its immediate cost, but in the overall cost. For example, the average cost to hire a home health aide can be as high as $40,000 per year. Just being able to postpone that care can save tens, or hundreds of thousands of dollars. And when the median savings of Medicare beneficiaries is only $75,000, that can mean a huge difference.
In other words, smart home technology won’t replace skilled nursing. And it won’t replace long term care planning, which is a vital part of retirement planning. But as smart home technology evolves, I expect that it will complement other improvements in home design, such as ADA roll-in showers that will help seniors age in place. And, by replacing tasks that can be automated, smart home technology will help focus skilled nursing care on exactly that—skilled nursing that technology cannot easily replace. At the same time, it might just help ease some of the financial burden on some of our seniors and their sandwich generation children who often care for them.
2. Homeowner’s Insurance. Insurance companies thrive on information.
In today’s data-driven world, the more information an insurance company can find on its policyholders, the more accurately it can price its policies. You’ve already seen this with Snapshot. Snapshot, offered by Progressive, allows drivers a premium discount in exchange for allowing the company to monitor their driving habits. This is known as usage-based insurance. Progressive was one of the first major insurance companies to offer this, initially through a device that you installed on your car. Now, virtually every major insurance company is rolling out its own usage-based insurance variant. In fact, industry insiders predict that user-based insurance will become a $122 billion industry by 2022. And that’s simply by using the technology in your smartphone to decipher your driving habits.
Let’s shift focus to smart home technology. Insurance companies have long offered to reduce premiums for homeowners who install security systems or other home improvements that reduce risk. But now insurance companies are offering to provide smart devices to homeowners, while reducing their premiums. These aren’t just little gadgets, either. They can be smart smoke detectors, home security monitors, or doorbell cameras, all of which homeowners are already willing to buy.
But why give away these gadgets AND a discount? For information. Information that can help the insurance company properly value their policies. Information that can help reduce or eliminate a potential claim. Information that can help the insurance company become more effective at handling the claims that it receives. And the companies are betting that the information they’re able to collect will be worth much more than the cost.
3. Tracking spending behavior. It’s impossible to ignore the trend in shopping. All you have to do is look at Amazon.
Only a few years ago, it used to be cool to hit the ‘One-click shopping’ tab on the website or app. Then, it was the dash button for commonly used items like detergent or paper towels. Now, all you have to do is say, “Alexa, order _______.” Pretty soon, our smart home devices will determine when we’re running low on milk and order it without our thinking about it. Just imagine an air conditioner that orders filters, a Keurig that orders more coffee pods, or a dishwasher that orders more soap.
And this convenience has a lot of people worried. After all, drunk shopping costs Americans $30 billion per year. And this is an industry that shouldn’t even exist, at least outside of stopping by a convenience store to pick up some munchies on the way home from a bar. So what’s the impact of being able to order what you want, when you want?
For most families, it will seem like a non-issue. The convenience of these services will allow them to spend more time doing what they want to do, and less time at the store. And there will be a nascent industry of people whose job it is to replace the in-store shopping of millions of Americans. It’s even conceivable that today’s children will have kids who never set foot in a traditional grocery store. Or at least a grocery store as we know it.
Of course, there will be that small group of people who get into trouble. They’ll even have reality shows based upon people who get into financial difficulty because they can’t control themselves. Instead of Hoarders, we’ll have ‘Boreders,’ the show about people who run up 5 and 6 figures of debt based upon their boredom shopping. And that’s only the beginning.
But the big winners here are the companies who will be tasked with fulfilling these orders. Not just the Amazons, but also the Proctor & Gambles, Coca-Colas, and all the others consumer goods companies. By being able to deliver straight to your house, they’ll know so much more about you and your spending behavior than ever before. And it will be even harder to say no than it used to be. Especially when Proctor & Gamble comes out with a new product design based upon your spending patterns. Or your smart home’s spending patterns.
4. Security. Obviously, security is a huge concern for homeowners. It always has been.
Back in the day, home security used to be as simple as having good locks and deciding what gun you were going to have (or how you would defend your home if you chose not to have a gun in the house).
But for those who need outside assistance, security systems and companies have been around since the 1800s, in some way or fashion. In fact, ADT, one of the world’s largest security companies, stands for American District Telegraph. According to ADT’s ‘History’ page, the company was created when its founder, Edward Callahan, experienced a break-in at his house. Afterwards, he created a telegraph-enabled callbox and connected it to 50 other households in his neighborhood, creating the first residential security system network.
Fast forward to today. The technology has changed, and so has the service. Most people are familiar with the standard security system from our childhood. A house, equipped with sensors, thus alerting a company in case any of the sensors are tripped. If not deactivated in time, the police are dispatched. Or if a smoke alarm isn’t deactivated, the fire department.
But what if you forget to close your garage door when you leave? Or lock the front door? Or change the thermostat? Today’s security systems, integrated into your home automation, have that covered. Security cameras? Yep. You can get updates from your phone anywhere in the world. You can even stream live feeds to your iPad in another continent. Automated fixtures, such as blinds and lights, can turn on and off at preset times, thus dissuading would-be burglars who are looking for houses where no one’s home. You can even have everything coordinated with your smartphone, which will ‘alert’ your house to when you’re coming home. That way, the doors unlock, alarms deactivate, and even the AC starts cooling to your programmed preferences. All as you’re pulling into the driveway.
All this has an impact on your finances. After all, you can reduce your insurance risk. You can cut out waste and save on your utility bills by ensuring your AC isn’t overcooling an empty house. But if you can watch your house while you’re half a world away, can’t the bad guys?
5. Privacy. We’ve all heard it before. Privacy is dead.
Virtually everyone has had at least some of their private information compromised. If you’ve ever had a Yahoo account, shopped at Home Depot, Target or eBay, or worked for the federal government, your information has probably been stolen. If you’ve applied for credit cards, taken an Uber, or played video games online, your information is probably no longer yours.
But the problem isn’t just hackers, who take our information as if they’re breaking into our house. After all, identity thieves stole $16 billion from approximately 15.4 million American households in 2016. But that pales in comparison to the true value of our information.
Google and Facebook, two of the world’s largest online companies, derive the vast majority of their revenue by selling ads. At first, they were ads, similar to what you would see on a billboard—advertising the same product or service to everyone. As they evolved, Google and Facebook realized they were sitting on a treasure trove of information. Our information. That we give them, for free. Voluntarily. By sharing with our friends and family. Or by our searches.
And that treasure trove is huge. By itself, Google generated more revenue from ads than identity thieves did in 2016. So did Facebook. As a whole, the online advertising is expected to become a $330 billion industry by 2021.
Let’s let that sink in. Our personal information generated 20 times more revenue for online advertisers than identity thieves. And it’s not even the same information. Usually, Facebook and Google aren’t dealing with sensitive information, such as social security numbers, account numbers, or other personally identifiable information.
So if supposedly private information created monsters out of companies who once said, “Don’t be evil,” and “Give people the power to build community and bring the world closer together” what do you think will happen when this information is in the hands of companies who expect consumers to: “Reward us with leadership sales, profit, and value creation?” And it’s being provided without our explicit knowledge, by Alexa, our video games, or our smart appliances? As we delve further into the world of the Internet of Things, it’s daunting to realize that our lives might become more complex and easier…at the same time. And the stakes keep getting higher as companies from an ever-growing number of industries step up for their turn.
And it’s not just our own homes. As we are welcomed into other people’s houses, what used to be private conversation might just turn up online. During our conference, Jerry told us about real estate transactions that have fallen through because sellers had security cameras recording buyer conversations in violation of real estate disclosure laws. And what happens when you sell your house, with all of these smart gadgets? How do you ensure your private information stays with you, instead of conveying with the house?
As a real estate agent, Jerry has incorporated this into his interactions with buyers and sellers. One of his seller agreements includes a listing of every smart appliance and device in the house, as well as accounts. He helps to negotiate account transfers, so that buyers and sellers know exactly who gets what.
But what happens when a homeowner dies? I’m pretty sure that most financial planners haven’t even thought of incorporating such safeguarding into their practices. And keeping on top of this trend will be an ever-evolving challenge, regardless of your industry background.
Learning about smart home technology really opened my mind. Indeed, just seeing some of the things that might be coming down the line will have financial professionals scrambling to keep up with their clients’ needs, questions, and concerns. And we haven’t really started yet.
So, what do you think? As you see technology offering an ever-growing selection of conveniences, what are you most excited about? Concerned about? Have questions about?
Drop us a line and let us know what you think!
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