One of the promises of online banking is that you can get an app to do your budgeting for you. It's something that feels necessary in a post-Great Recession world: Real household incomes have been falling over the last decade and a half, and people have to keep track of their money because they have less to spend than they once did.
The idea is that by tracking your spending, you can avoid the kind of profligacy that leads to budget downfall. Unfortunately for most Americans, budgeting isn't really the problem.
Keeping track of every happy hour drink may help on the margins, but for most people, financial problems are caused by things like losing a job or getting sick. The real problem is not that you aren't budgeting -- it's that the costs of housing, college and health care have skyrocketed in the last 50 years. No app can keep you from overspending on rent, needing to pay back student loans or medical debt, or suffering through bouts of unemployment.
That hasn't stopped banks from trying.
Ally Bank’s new app, Splurge Alert, is sort of like a reverse-Yelp. It uses geolocation to alert people when they're approaching stores and restaurants where they tend to spend money unnecessarily. Warning! You're entering a high-spending zone! In the promotional video, Drew Scott, the co-star of popular HGTV show "Property Brothers," admits to a bad habit of buying antique swords. ("I’m not a violent person," he says. "I just like deadly medieval weapons.")
It’s an interesting take on budgeting gamification. But who, exactly, is this helping?
"I can imagine a very limited set of situations where this kind of thing might be helpful," said Abigail Sussman, a marketing professor at the University of Chicago who studies how people make purchasing decisions. She said this approach might be useful if a person already knows they have a problem with a particular type of spending, and they're making a conscious effort to steer clear of it. But when it comes to specific harmful spending habits, this kind of self-awareness is actually pretty rare.
There are more broadly helpful versions of mobile banking. Citi, for example, lets its customers see basic details about how much money is in their checking account on the app homepage, without signing in. Simple, an online bank that prides itself on customer service, has a proprietary tool called "safe-to-spend," which shows you how much discretionary cash there is in your account, automatically subtracting the money you spend regularly on things like rent and utilities.
But again, that kind of thing only helps with a small percentage of irregular purchases. There's a story in The Atlantic this month about a man -- a film critic -- who barely has two pennies to rub together, despite all the outward signals of being well off. He owns a house, has published many books and is well-known as a writer. He has a child who went to Harvard Medical School. But, he explains, he and his wife have no retirement funds and no savings as a result of a little bit of bad luck, and some very poor choices on his part.
Would any of these apps help this man? Probably not. His problem is his lifestyle, not his day-to-day spending. He was paying two mortgages for several years because he and his family moved during a market downturn -- in Brooklyn and East Hampton, no less, two of the most expensive housing markets in the country. His wife quit her job when their children were young, then had trouble finding her way back into the workforce. They sent their children to private school. Almost no amount of restaurant-splurging stacks up against years of five-figure private school tuition.
As part of the app’s launch, Ally commissioned a third-party online survey by Harris Poll on people’s splurging habits. While 85 percent of people said that they occasionally splurge on things, only 7 percent said they do it once a month or more. The most common splurges by far fell into the “food and drink” or “clothes and shoes” categories, both of which usually end up being relatively small amounts of money compared to, say, rent.
Meanwhile, a recent report by the Federal Reserve showed that 47 percent of Americans say they don’t have $400 to spare in an emergency, suggesting that splurging isn’t the big problem for most people’s budgets.
In a 2012 paper on what motivates consumer spending, sociologist Jeff Lundy found that splurging on things like clothes and restaurants is usually a sign that a person is accumulating wealth, rather than the opposite. “The best predictors of both wealth losses and reduced wealth accumulation were adverse circumstances which tend to overwhelm a household’s budget,” the paper says.
And no app can bring back the erosion of Americans' incomes since 1999. But that app certainly would be cool.
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