The App Cannot Change Your Financial Behavior
There is an application for everything, many promise to help people “fix” something in their life. For example, productivity apps will transform you into a superhuman worker, while financial apps can help you achieve Rockefeller wealth.
Of course, no app can actually do this. For Ringer , Molly McHugh writes Good Escaping the Weaknesses of Finance Apps specifically. The main takeaway is that you cannot rely on the application alone to change your behavior. Especially in the financial sector, where there is literally so much money at stake.
As I wrote earlier, I use a number of financial applications , as do many Two Cents readers. For example, I use Digit , which costs $ 2.99 a month after a free trial. Paying to save is inherently counterintuitive. But Digit is also one of the few services I missed out on when I stopped using it. He is currently helping me save money for my vacation, and I have hidden enough, which I think is worth the money spent. (Also note that I had several iTunes gift cards that gave me a few “free” months.)
Of course, there are other savings apps that you can use for free. But Digit suits me the best, so I pay for it. Erin Lowry, aka Broke Millennial , tells McHugh that you should seriously think about the value you are getting. “My rule of thumb is if you use them, try to invest at least $ 50 a month to really get a real bang for the buck you are going to pay,” Lowry says. Your mileage will vary, but it’s not a bad threshold.
However, there are some categories of apps that don’t necessarily add value. I have already written about my problems with microinvesting , in particular, before, the main one of which was the following: the buyer to whom these applications are advertised (young, newbie in investing) will be much better off investing the “extra” money that applications invest in their 401 (k) or other retirement account . You really don’t get more for your money by skipping the tax-credited retirement account offer or potentially paying additional fees on the platforms, especially if you don’t have a lot of money to invest in in the first place, or you’re not all that good financially.
And, as McHugh’s article points out, payday and microcredits are particularly dangerous financial territory. “If you have something that you can easily tap on your phone [for money] once a month, several times a month, and you start relying on it, that can definitely turn into a problem,” Lowry McHugh said. … Switching from one financial product to another (say, from a credit card to a short-term loan application) does not magically provide additional money to spend; he simply transfers responsibility.
Some of these loan applications, such as LendUp, presented themselves as less risky alternatives to predatory payday loans, but much of the difference is marketing, writes McHugh. LendUp, in particular, “was ordered by the Consumer Financial Protection Bureau [CFPB] to pay $ 3.6 million in damages and fines to more than 50,000 customers” in 2016 after the agency ruled the company had misled customers. “The CFPB found that the company was not giving consumers the ability to create credit and provide access to cheaper credit as advertised to consumers,” the CFPB said in a statement, and “hid the true cost of the loan,” among other things. other things.
When it comes to “fixing” your finances or paying off debts, there is no one-size-fits-all application.
Apps alone won’t change behavior
Being suspicious of any financial product is smart and necessary, especially when it promises to change your life. Like any other product, apps are not a silver bullet.
McHugh summarizes this (emphasis mine). “The idea behind many of these apps is that saving is so easy that you won’t even notice that the money is gone, but anything that is designed to dramatically improve someone’s financial life should be visible .”
If you want to change your financial behavior, such as saving more or paying off debt, you will have to put in a lot of effort and work hard . This is the opposite of what most apps promise you. You must define your goals , make tough decisions and compromise when it comes to spending and savings, pay attention to commissions and impulse purchases, and be choosy when it comes to the products you buy.
This doesn’t make all apps useless – as I said, I love Digit and use Dollarbird to track expenses – but it does mean you need to work on your basic financial fitness and habits before using them. For example, I don’t use Digit as a one-stop-shop for my savings: I have a separate emergency fund and I automate the investment from each paycheck. So, this is not a crutch, but an addition to the already reliable financial plan, which I am refining over time.
This is how you should think about all of these applications. They cannot turn you into a financially responsible person, and there is no magic button on your smartphone that you can press to manage your money. They are simply tools that can help you achieve certain goals if you know how to use them.