What changes when you can see your money

Keeping a household budget has a reputation for being the thing nobody keeps up with. So what happens when a phone app lets you see your balance and spending at any moment? Bruce Carlin, Arna Olafsson and Michaela Pagel looked into this using data from Iceland.

What we know

A personal finance app that connects to bank accounts was launched in Iceland. The researchers compared people’s money behavior before and after they started using it. Because the app’s release meant that people began using it at different times, the researchers could use that timing to strip out other influences as far as possible.

Here is what they found:

• Insufficient-funds fees fell. The fees charged when an account runs short went down after people began using the app. Twelve months on, the drop was estimated at 4.46 to 4.79 dollars a year.
• Other results were unclear. For overdraft interest and late fees, the results were not clear.

A likely reason is that the balance was now always in view, so people noticed sooner when they were about to run short.

A related line of research helps here. A meta-analysis of interventions that had people monitor their progress toward a goal, covering 138 studies and 19,951 people, found that monitoring helped people reach their goals (d=0.40). The effect tended to be larger when results were shared with others or physically written down.

The two findings share a simple idea: a problem you can see is easier to act on than one you cannot. Running short can have less to do with having no money than with a payment and a low balance meeting before you notice.

How to read it

• The Iceland study is a quasi-experiment. It is not a randomized trial. People who started using the app may have been at a moment when they were already paying more attention to money.
• The amount was small. We are talking about a few dollars a year. It does not show that installing an app transforms your finances. A more accurate reading is that avoidable costs like fees went down a little.
• It is about Iceland. We have not found a comparable study of finance apps in Japan.
• The monitoring meta-analysis is not only about money. It covers many kinds of goals, including health.

A small step today

The point is not to build an impressive budget. It is to make your money visible. Start the app habit “Tracked spending” with one of these:

• Write down just one thing you spent money on today. The amount and what it was for are enough.
• Pick one day a week to look at your account balance. Check that there is enough before upcoming automatic payments.
• Write down one payment that is due soon. Insufficient-funds fees are a classic example of a cost you can avoid once you notice it.

Over time, tracking shows you when, and on what, you tend to spend. It does not need to be perfect. Once you have written one down, log it in the app.

Sources

• [D12] Carlin, Olafsson & Pagel (2023) Mobile Apps and Financial Decision Making. Review of Finance.
• [E4] Harkin et al. (2016) Does monitoring goal progress promote goal attainment? A meta-analysis of the experimental evidence. Psychological Bulletin.