Show your money who’s boss — 8 app ideas
Part 2 of a 3 part series on personal finance management
In the first installment of this personal finance series, we looked at three challenges that confront us when we try to match what we value with how we spend our money. In Part 2, we take a look at how to deal with two of these problem areas: assessing value, and giving you time to think before you spend.
Assess value
We might say that in life we value family, friends, good health and education, but do we put our money where our values are? If every euro spent is a vote for a world we want to live in, how can we make sure we spend in line with our values? The good news is that modern banking apps are well placed to address this challenge. Here are some of the very real issues that could be folded into a new wave of banking apps:
📷 Highlight opportunity costs
We can help make sense of our value system by being more explicit about the trade-offs we make every day. Sure, we can buy this new camera. But if it comes at the expense of visiting Grandma over Christmas, do we really want to do that?
⚓️ Create sensible anchors
An anchor is a point of comparison. Instead of creating a strict budget for each category in our lives, we can help people to be more flexible by showing them a smart anchor. Here’s what that could look like: “You paid 20 euros for this bottle of wine, which is 4% of your weekly budget. However, you indicated in this app that you want to spend more on outdoor trips, and you’re not on track to meet this goal.”
🤓 Provide smarter defaults
The history of your spending yields a clearer understanding than your memory. Instead of asking an open-ended question like “what would you like your budget to be?”, an app should provide a default based on personal situations. This can work for budgets, saving goals, or even gauging how much you should spend on a bottle of wine. When you walk into a coffee shop your app could send you an alert that says: “People on a similar budget will spend around 12 euro a week on take away coffee.”
🖼 Allow for framing and reframing of decisions
We make our decisions based, largely, on how information is presented to us. If you lay out the fact that a subscription that costs 10 euro per month will amount to roughly 5000 euro over a lifetime, will the subscription still seem worth it? A new phone might cost 600 euro, but if you keep it for 4 years, it costs barely 40 cents per day. Does that seem worth it? Similarly, we could group items that normally fall in different categories together, like holiday expenses. We could compare these holiday expenses with the cost of a new kitchen we’re thinking about installing. Do we want to drop so much money on the holidays after all?
We can only spend each euro once. Apps can help us understand trade-offs by showing us the relevant context of value.
Help me stop and think
In his book Thinking Fast, Thinking Slow, psychologist Daniel Khaneman distinguishes between two ways the brain forms thoughts: System 1 and System 2 [1]. System 1 is fast, automatic, emotional, and unconscious and System 2 is slow, effortful, calculating and conscious. We can apply this framework on our behavior with money, too. Most of our daily dealings with money tend to be unconscious (for example, routine grocery shopping, or bills that are automatically deducted from our accounts every month). However, we can design tools that would help us bring better choices to the foreground. This way, we could remind ourselves of all the goals we need to meet, and the limited budget we have to meet them. We can use friction as a design method and design for conscious effort, in that way you won’t accidentally break your goals, but only do it as a conscious decision.
💰 Help us become conscious and deliberate when we make a payment
Decades of payment innovations have made paying bills nearly effortless, thereby pushing the pain of paying far into the background. If we want to be conscious and deliberate about our decisions we need to bring some of this pain back into existence. Apps could be designed to offer creative ways to unlock our payment card. For example, when we approach the end of our budget, we might have to “unlock” the card 1 minute before we want to make a purchase, giving ourselves some extra time for reflection.
🦄 Show us effort, tell us stories, give us a ritual
We’re willing to pay more for a glass of wine when it comes with a nice story and a nice pouring ritual. “Experience modifiers” are those things that add layers of emotions around purchases. They can involve language, embedded efforts, rituals, and reminders of our expectations. For example: We could label a savings account “my child’s education fund.” Then, an app could show us that our current savings amount took us 4000 days to accrue. Next, we could create a pleasing ritual every time we hit a new target (the app could play our favorite song, or unlock a voucher for ice cream). In this way we make it easier to trigger our loss aversion and provide us with the strength we need to resist spending.
⬛️ Hide our savings
Hiding our savings helps us to focus on the amount that we want to spend instead of on all that we could spend. An app’s homescreen could show our weekly budget in numbers, and all our other goals in percentages. This could be an important adjustment, because evidence suggests that the most successful investors are those who look at (and change) their investments less than once a year. Showing percentages rather than specific euro amounts keeps those goals more abstract, thus making sure that we’re less tempted to go in and use the money for more immediate needs.
🐷 Show our savings
When you just start saving money, it might be useful to have those savings pile up in a hidden way so you don’t feel tempted to spend it when, say, a friend invites you to a costly event. But, after a certain point, showing your savings can become a point of pride, something that you’d like to look at (it’s at that point that loss-aversion beats the present-bias and it makes sense to show the euros instead of the percentages).
Conclusion
To help us spend our money in line with what we value we need to create tools that help us compare our options. We need tools that will slow us down and give us a moment to think before we spend. Designers have an opportunity to work with banks to align this psychology with everyday spending issues.
In the final installment, I take a look at the actual life cycle of our money. How can we break it down so that our financial lives work for us, rather than against us? Personal financial fitness might be as easy as taking 7 easy steps…
Sources
1: Wikipedia, Thinking Fast, Thinking Slow
Icons via the Noun project
