Goal setting and motivational features are common in today’s personal finance management offerings, but consumers would budget better and save more if they avoided overspending on exceptional items. CBA (Commonwealth Bank of Australia) is the latest bank to implement such a savings tool within its mobile app.
Its “Goal tracker” savings tool enables CBA customers to set specific saving goals against a timeframe, with the help of regular prompts that encourage them to set aside funds. It provides customers with a savings plan and aims to help them stick to it.
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Although Goal Tracker has helpful features, it doesn’t address a key reason why consumers fail in keeping to a budget.
In their paper The Exception Is the Rule: Underestimating and Overspending on Exceptional Expenses, Sussman and Alter point out that consumers are “fairly adept” at forecasting spending on frequently purchased items, but both “underestimate their spending on exceptional purchases overall and overspend on each individual purchase”.
According to Sussman and Alter, the main reason for this is that consumers categorise exceptional purchases too narrowly, “construing each purchase as a relatively rare occurrence”.
As a consequence, consumers are less likely to readjust their budgets to include similar exceptional purchases in the future, resulting in “overspending on the present expense.” Over time, by construing exceptional purchases too narrowly and not as part of a broader category, overspending occurs. An inability to keep to budget saps motivation and prevents consumers from moving forward with their savings goals. While CBA’s app, along with many others, has spending categorisation, analysis and similar tools to “Goal Tracker”, it has yet to address consumers’ weakness in estimating exceptional spending.
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By GlobalDataWhat CBA should also have implemented are prompts that highlight to the customer whether or not they thought a purchase was exceptional. This would prevent them from discounting exceptional purchases from future budget forecasts and, as Sussman and Alter suggest, viewing their budget less myopically. In addition, purchases deemed to be exceptional should be reviewed, perhaps at a later date and again via a prompt, allowing customers to reconsider them as part of a broader category.
Banks should offer tools like CBA’s Goal Tracker, but they also need to address the main reasons why customers are blowing their budget and not achieving their financial goals. For banks that already include spend categorisation within their apps, this is eminently achievable and a great way to engage customers.
