Automating Good Habits

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. “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, help bridge the gap between our desire to save and actually saving by using behavioral economics, which studies how thoughts and feelings influence money decisions. Automatic transfers leverage the “default effect,” where people tend to accept preset options rather than change them. Companies that automatically enroll employees in 401(k) plans see higher participation, and banking apps use this behavior to encourage gradual saving. Apps like Qapital and Acorns round up transactions to the nearest dollar and transfer the change into a savings account. Automatic transfers let users move money from checking to savings accounts regularly, removing the need to remember manually.

Behavioral economics also uses mental accounting to help people categorize spending, such as separating “fun money” from daily expenses. Budgeting apps like Mint and You Need a Budget track spending by category, while some online banks offer multiple savings accounts with nicknames linked to goals, discouraging unnecessary withdrawals. Spending locks or blocking certain categories on cards add a layer of control, helping users resist impulse purchases. Overall, banking apps combine automation, categorization, and subtle barriers to improve savings habits and financial decision-making (Tierney, 2019).

This article is really interesting when considering behavioral economic principles and how they are applied within the online banking area, and the influence it can have on financial habits. There are ceratin feature that can be integrated and innovated in order to help a user improve their financial habits  without completely shifting their current lifestyle and following a super strict plan. A soft nudge allows for users to be guided towards their goals without putting in a lot of effort, slowly shifting their behavior and attitude over time. This article empphasises the importance of allowing an already stressful are to be more convenient for the users while still allowing them to have their independence. Automation of some of these actions can simplify the saving process, however these actions are less impactful then hard commitments but they still provide a sense of accomplishment towards a goal. Combining multiple of these behavioral change can have a lasting impact on the financial behavior of the users.

References:

Tierney, S. (2019, February 22). Banking apps use behavioral economics to change our money habits: Curb spending, boost your bank account. MarketWatch. https://www.marketwatch.com/story/banking-apps-use-behavioral-economics-to-change-our-money-habits-2019-02-22

Ai was not used in the creation of this article