What could help you win the battle for your disposable income?
Lots of people want your money. Some of them - like your landlord, your local utility, or the company that lent you money to buy your car or go to school - you just have to pay. But some of them have to fight over your disposable income, your discretionary spending. Retailers, restaurants, travel and entertainment companies, and even financial institutions all compete for the money you get to spend in a given month that isn’t already spoken for by essentials. This isn’t the kind of competition in which you, the spender, win out in the long term. Few of these companies are thinking about your financial wellbeing. They want to take as much of your money as they can right now, and they are very good at it. So good, in fact, that at least in the US, households are deep in debt from spending too much, and shallow in savings because even if it isn’t obvious who is winning the battle for your disposable income, we know who is losing: savings accounts.
I guess it isn’t surprising that savings accounts are so low when credit card debt is so high. The same banks that will hold your savings also offer you credit cards. Though they need the savings in order to lend it to other people, they can charge you huge interest rates on the money you borrow through your credit cards, making credit cards very profitable. I see credit card ads all the time. When was the last time you saw are really good add for a savings account? This one from Prudential is the only one that comes to mind.
I think Americans, and the people who would like to help them save money, could use some reinforcements in the battle for their disposable income. There should be an app for that. I would call Buy It or Bank It:
Buy It or Bank It would help its users decide whether or not to buy something by comparing the cost of the product to the cost of equivalent, cheaper products and suggesting to the user that they either buy the cheaper product and bank the difference, or buy the cheaper product and something else they need that costs less than the difference:
For example, if I were thinking of buying a fancy $75 shirt, Buy It or Bank It would inform me that I could buy a shirt that is basically just as nice for $50 and automatically put the difference into a retirement account so it will be worth $250 when I retire, or enough to buy 5 more shirts.
Or Buy It or Bank It might suggest buying the $50 shirt and a $20 hat that I have been thinking about buying and had put on a wish list, thereby helping me make my disposable income go a bit further and helping me snap out of the mindset that the $75 shirt is really special and “worth it”.
The app could present me with other options, like putting the $25 savings toward something on my wishlist that I can't afford now, or just putting the whole price of the shirt into savings after it shows me what that money could get me in the future.
The key to this is showing people what else their money could buy - in terms of things they could buy now (the shirt or hat) or things they could buy later (a vacation, a house, a retirement) - to make saving money less abstract, essentially to make it feel like you are buying something when in fact you are saving for it.
This would work best as an Amazon-related browser plugin that pops up something at the point of sale, suggesting alternatives and tapping your Amazon wishlist. It would also need to connect to a comparison shopping engine like Amazon’s or another company’s.
And finally it would need to connect to your bank or retirement account, and this is where the app would make money: by partnering with banks that wanted to encourage good financial behavior and earning commissions on the deposits.
This would be a win for everyone except credit card companies and people who sell useless, over-priced stuff. I hope someone gives it a shot.