Serving those with ‘side hustles’

How financial professionals can work with the growing gig economy

The gig economy has taken the world by storm, reshaping the way people work and earn a living. This transformation has been fueled by a variety of factors, including technological advancements, changing attitudes towards work, and the economic impact of events like the Covid-19 pandemic.

In the United States, millions of people now participate in the gig economy, encompassing a wide range of roles from Uber drivers and freelance designers to Airbnb hosts and consultants. While stories of YouTubers and TikTok stars earning eight-figure incomes making videos may sound surprising, it represents an emerging investment theme where workers of all income levels are now participating in the gig economy.¹

This monumental shift in the employment landscape presents an enormous market opportunity for financial professionals. Here’s a closer look at the rise of the gig economy, its implications for financial services, and strategies financial professionals can apply to tap into this growing demographic.

The gig economy boom

The gig economy, also known as the multi-earner economy, the freelance economy or on-demand economy, is characterized by a workforce that predominantly engages in short-term contracts, freelance assignments, and part-time work. Gig workers use digital "...the gig economy is expected to generate a gross volume of approximately $455 billion by 2023." platforms to connect with clients, and the spectrum of industries they cover is vast, including finance, insurance, IT, retail, healthcare, media, education, and property management.

The gig economy's growth in the United States has been nothing short of remarkable. According to a Mastercard research study, the gig economy is expected to generate a gross volume of approximately $455 billion by 2023, more than doubling from 2018.² The Covid-19 pandemic played a role in accelerating this growth as many Americans who lost their full-time jobs turned to gig work for income stability.

Upwork's 2020 study reveals that 36% of the total U.S. workforce freelances, contributing $1.2 trillion annually to the economy.² The convenience and accessibility of digital platforms have made it easier than ever for gig workers to find employment opportunities using just a smartphone. As of 2021, Pew Research Center reports that 16% of American adults have earned money from online gig platforms.²

This shift towards the gig economy is also driven by a growing preference for work-life balance, especially among millennials and Gen Z, as people seek more flexible schedules. However, the gig economy is not without its challenges. One significant drawback is the inconsistency of income, which can hinder access to essential financial products like investment accounts, loans, and insurance. Traditional banks have often been reluctant to address these issues, focusing primarily on a more affluent customer base.²

Challenges with traditional financial services

The gig economy's exponential growth has created a gap in the financial services sector. Traditional banks have been slow to adapt to the unique needs of gig workers. They struggle to access data on the financial behaviors of gig workers, as many of them conduct their financial activities off the books. "...ChatGPT could transform the gig economy into a $1.4 trillion industry." Because of their lack of consistent income,³ inadequate financial knowledge, or lack of credit history and collateral,⁴ gig workers also face challenges securing financing. Moreover, the bureaucratic and complex structure of traditional banks hampers their ability to provide quick solutions tailored to gig workers' needs.

This misalignment between traditional financial institutions and gig workers has opened an enormous opportunity for financial professionals to step in and fill the void. By understanding the specific financial challenges faced by gig workers, financial professionals can offer innovative solutions and build a loyal client base.

How AI is transforming the gig economy

Even if traditional employment options don’t decline in the future, artificial intelligence (AI) programs like ChatGPT could transform the gig economy into a $1.4 trillion industry, according to Morgan Stanley.⁵ For gig workers, the future of generative AI appears bright with continued advancements in technology and could be a major differentiator.⁵ Morgan Stanley found that 93% of content creators and 90% of e-commerce sellers said their monthly income had increased due to the technology.⁵

The way forward

The gig economy has become a transformative force in the modern job market. Millions of Americans now rely on gig work for their livelihoods, and this trend shows no signs of slowing down. Financial professionals have a unique opportunity to tap into this burgeoning market by offering innovative and tailored financial services to gig workers.

By addressing the specific challenges faced by gig workers, such as income volatility and limited access to traditional financial products, financial professionals can not only help gig workers achieve financial stability, but also grow their own businesses.

In a rapidly evolving economic landscape, financial professionals who adapt to the needs of gig workers stand to benefit from a growing customer base and the potential for long-term loyalty. As the gig economy continues to flourish, financial professionals have a golden opportunity to be at the forefront of this transformative shift in the world of work and financial services.