The Power of Financial Insight
22Seven has launched a great product. MoneySmart is another great entrant to the personal financial management (pfm) field. In time the banks will follow with their pfm versions.
While doing great groundbreaking work, these services are still hampered by the banks' willingness to cooperate. Putting it differently, the banks' clients (that's you!) have not yet (in sufficient numbers) shown your banks that they have to cooperate.
For those not yet familiar with what a pfm tool is: It's software which can categorize your expenses. It also allows you to budget as well as save for particular items. The idea is that you get a grip on where you've spent your money and are then able to start changing your spending (and saving) habits.
The way it currently works (in broad terms), is that the pfm tool reads your bank statements, recognizes where you've spent your money, and then adds the amount to the relevant category. For instance, if you've shopped at PnP or Spar, then the program will recognize that line-item on your statement and add your payment to the "Groceries" category.
If you've shopped at WW, then the program has a problem because that could be either "Groceries" or "Clothing". To deal with that, the pfm software allows you to split the transaction-amount manually: you can allocate part (or all) of your expense to either of those categories.
In these few paragraphs I have already touched on several problems which hinder the full potential of this software:
1. Getting to your bank statements
2. Categorizing accurately
3. Creating instant awareness of your spend
4. Financial literacy
5. Reading the output on your mobile phone, tablet or PC/laptop. Different operating systems (iOS, Android, MS, Blackberry, Symbian/Nokia)
1. To get to your transactions, several routes may be followed:
One is that you download your statement to your computer and then upload it into the pfm program.
The advantage is that there is no issue with banking security (i.e., you control that by logging-in securely). The disadvantage is that it is manual and you may not have the inclination/discipline to keep on doing that.
Second is that the pfm program in some manner logs into your account and fetches the latest transactions.
This has the advantage that it happens automatically and regularly. The disadvantage is that this method can be attacked on the notion, real or perceived, that it can be hacked and your money stolen. To the latter, I offer the thought that a great deal more theft happens through people not managing their own (supposedly) secure log-ins. Many personal computers are unsafe and are easy targets for keystroke loggers, as well as the issue of phishing.
The safety of the pfm tool logging into your account may be improved by creating a read-only profile on your account, which the pfm service can access.
There is a third route, which is that your transactions are fed to the pfm service by your bank. To my mind, this is the way to go. Safe, secure and it can feed each transaction instantly.
There is a fourth option which I won't dwell on now.
2. Categorizing accurately:
The pfm software has to recognize where your money was spent and then know what kind of shop that is. It does that either by recognizing the name of the shop and/or by recognizing a merchant code/ category. Somebody at the service provider has to 'teach' the software correctly. However, many shops sell items which would fall into a range of categories. For instance, at PnP you may buy wine (category "Entertainment"), fruit ("Groceries"), a track suit ("Clothing"), kids pyjamas ("Children's clothing"), a mixer ("Household equipment"), dog food ("Pets"), etc. Would you categorize all of that manually? Every week? How long will you keep that up?
What we need to get to, is that the till automatically allocates a category to each item. That can already be done. Then that data needs to get into your pfm account. There are a whole lot of issues there...
3. Creating instant awareness of your spend
That can be done when the banks are persuaded to feed transactions to your pfm service. Immediately after paying at the till, you would get the transaction fed to the pfm service. The pfm then sends you a message showing how much you have spent to date on the categories which were affected by your purchase.
4. Financial literacy
Many people would welcome an overview of their expenses. But once you have that, what then? What do you actually do with that information?
Some pfm services can send you a message immediately after your transaction, giving you suggestions on how you could have spent your money differently, given the goals that you might have set for yourself. Or it could tell you where you could have got that item, in the vicinity, at a lower price. Or you could have asked the service, beforehand, where you could get the best deal.
A pfm service could give you targeted messages during the course of a year, all adding up to a complete financial awareness program.
5. Reading the output on your mobile phone, tablet or PC/laptop. Different operating systems (iOS, Android, MS, Blackberry, Symbian/Nokia)
Offering this as part of the service is a challenge to many pfm programs. Rendering in html5 would solve much of this issue, but not all pfm services have got there yet.
In another post I'll talk about exciting new ways to do financial planning and using a pfm service to access any bank in the world and work with any currency.
Cheers!
The Power of Financial Insight, brought to you by Figlo
