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Every time Olivia Robinson shops at Nordstrom, $10 moves from her checking account to savings. She set up this automatic transfer, or “rule,” in the savings app Qapital.
The rule "has definitely scaled back my spending at Nordstrom,” says Robinson, 26, a flight attendant and travel blogger based in Seattle. This way of saving money “makes me feel like I can go on a trip and not feel guilty about it."
Some apps, like Qapital, can help bridge the gap between our desire to save more money and following through. Here’s how tech tools can nudge us to save — with clues from behavioral economics, a field that explores how our thoughts and feelings affect how we handle money.
Automatic transfers: giving in to the ‘default effect’
Studies show that we tend to accept a default option instead of changing it. For example, companies that automatically enroll their employees in 401(k) plans tend to see higher participation rates.
Similarly, some banking apps harness this behavior to help us save gradually.
Opting into automatic savings programs: Apps such as Qapital and Acorns — and some banks, too — can round up each transaction to the nearest dollar and transfer the cents over to a savings or investing account. You won’t get rich quick, but the savings add up over time.
Setting up automatic transfers: Banks’ apps or websites usually let you transfer money from checking to savings accounts, so you can set up recurring transfers, possibly timed around when your paycheck arrives.
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Ideally, we'd save by looking at our monthly expenses and carefully calculating how much we can set aside. But automating a fixed-amount transfer offers the luxury of dropping a task from your to-do list.
"Making something default or automatic is a great way to overcome issues of self-control,” says Jeff Kreisler, co-author of the behavioral economics book “Dollars and Sense” and editor in chief of PeopleScience.com.
Savings goals and budgets: using mental accounting
In a 100% rational world, we would treat all our money consistently. But that’s not how it always shakes out.
For example, you might have coffee at home to avoid spending $4 at a cafe, but also buy a $10 beer at a baseball game even though it’s cheaper to buy a six-pack at the store and tailgate. The coffee, you might justify, is a daily expense, while the beer is part of your “fun money.”
This tendency to think about money differently depending on where it is, such as which bank account it’s in, is called “mental accounting,” Kreisler says. Such categorizing isn’t a bad thing if you can use it to your advantage:
Tracking spending by category. Budgeting apps such as Mint and You Need a Budget can sync with your bank accounts and break down your spending in specific areas, such as dining and grocery shopping. This helps keep tabs on where you overspend and curb any bad habits.
Using separate accounts. Some online banks let you open multiple savings accounts and give each a nickname that can map to your savings goals, such as a future vacation or an emergency fund, and use an app to view balances and set up transfers. You’re less likely to dip into that money if it’s not part of your checking balance.
» See which banks offer multiple savings accounts
Spending locks: accepting the ‘pain of paying’
“There is a pain we all feel when we give up something,” Kreisler and Dan Ariely wrote in “Dollars and Sense.” Buying things means we’re giving up money.
Credit cards, e-wallets and the latest payment technology make paying more effortless and less painful than using cash, but their convenience has a downside.
“Pain serves a purpose,” Kreisler says. “It makes us pay attention to what we’re doing and adjust” when necessary.
But using cash isn’t the only way to raise spending awareness. Apps can help here, too.
Locking debit and credit cards: Some banks let you switch your plastic on and off within their mobile apps, which can help control impulse buying. This might be handy if you associate spending categories, such as ride-sharing or eating out, with certain cards.
» Learn more about credit card locks
Blocking certain spending categories: Though only available overseas so far, one major credit card issuer and some online-only banks in the U.K. have rolled out an app option to block certain types of transactions, such as those from bars and gambling websites.
Of course, you control the locks and blocks. But adding an extra barrier to paying might be enough to prevent unnecessary spending.
As banking technology advances, we’ll likely see other ways that apps can help motivate us, such as more timely and personalized advice.
“We aren’t yet at the step where many banks are offering those proactive suggestions or reminders with respect to a budget,” says Daniel Latimore, chief research officer at financial analyst firm Celent. “But I can see that happening in the near future.”
You can’t literally download motivation. But some banking tools may give you just the right push to boost your savings habits.