Word To Millennials: The Hidden Dangers Of Automatic-Payment Apps (#GotBitcoin?)
For younger people, the technology has severed the connection between the things we buy and the act of paying for those things. Word To Millennials: The Hidden Dangers Of Automatic-Payment Apps (#GotBitcoin?)
To get a sense of how different spending is for my generation than for my parents’ generation, just consider one simple transaction: a utility bill. When my parents paid their utility bill, they had to take out their checkbook, put pen to paper, write a check and then record it in their checkbook. If they didn’t know how much their utility bill was, they had to be willfully ignorant.
My utility bill is paid automatically from my banking app. For me to know how much my utility bill is, I have to be willfully diligent. And the truth is, sometimes I am, sometimes I’m not.
I’m not just talking about utility bills here, of course. As for most other millennials I know, technology has made paying all sorts of bills so easy that we don’t even have to think about it. And that’s the problem: By making personal finance so much easier to do, technology also has made it so much easier to ignore. But in doing so, it has severed the connection between the things we buy and the act of paying for those things.
It’s that connection, though, that can keep our financial lives on track—making sure we save enough, and spend on the things that really matter.
The irony here is that these tools we all use—the real-time budget apps that capture my expenditures and pay my bills automatically—theoretically should be giving us more control over our money. They allow us to see the short- and long-term consequences of our spending decisions in a way we never could before.
So why, in real life, do they do the opposite, offering us the luxury of ignoring our finances more than ever?
It helps to think about how people used to spend and pay. My parents and others of their generation describe to me a process that would entail three separate points of contact whenever they swiped a credit card: first, at the cash register, then when a bill came in the mail and finally when they wrote a check to cover it. On each separate occasion, they were presented with their decision to buy something and forced to assess the wisdom of that purchase and the impact it had on their account balances.
Each part of that process was also accompanied by a routine. Paying bills was an act done with militaristic precision on weekend mornings. Envelopes were opened, pens were uncapped and checks were signed and then ripped in strict four-four time. My generation has traded that cadence for something with a structure akin to free jazz.
While each of the checkpoints from the original process is technically still there, automation has given people a chance to skip the two that happen after the initial card swipe. And when it comes to bills paid automatically through a banking app, even the first checkpoint is gone. We know it’s happening in the background, but it’s so far out of view that it might as well not be there.
It’s obvious why such a system is appealing. As one 25-year-old friend described it to me, it’s an “out of sight, out of mind” approach that frees him from daily money anxiety while simultaneously ensuring that he doesn’t miss a payment.
But these arms’ length transactions come with a high price. A financial professional I talked to says the biggest concern is that it fosters a basic financial ignorance. If you don’t constantly think about where your money goes, you won’t think about whether you’re spending it wisely.
Sure, an app can make sure you don’t spend more than you have. But personal finance, of course, is about a lot more than staying out of the red. Paying with pen and paper is very much an active process. Spend $10,000 over the space of several months, and you’re creating a muscle memory around spending. When apps balance the checkbooks, robots make the payments and people are only responsible for the charging part, it’s much more passive. If you ever had the smart-spending muscle to begin with, it won’t take long to atrophy.
Furthermore, the passive nature can alter how far people think ahead. One parent described how simply knowing there would be a review process in the near future acted as a deterrent to frivolous discretionary spending. She knew that at some point soon, she’d have to see the impact of her spending and saving. She’d see each individual item she bought, each bill coming due, and she had to think about it. That muscle memory again.
And now? As long as I’m not spending money I don’t have (something my apps won’t let me do), I can put off that regular review for as long as I want. It means that I don’t have to think carefully about every purchase I make, and whether it was money that could have been spent—or saved—more wisely. In the long run, this could mean saving a lot less than I should have, and getting a lot less out of my spending than if I had given things more thought.
The question now is: How do we get that connection back, without giving up the convenience that technology has brought us?
The good news is that what technology has taken, it can also give. Much of the battle is simply recognizing what we’ve lost. After all, we don’t miss what we don’t know we miss.
Understanding this, we can start using personal-finance apps to do more than make our lives easier. These apps can categorize purchases and send you a spending report. They can detect—and warn you—if a recurring payment is going to get you in trouble. And they can send you notifications when each automatic payment is being made, giving you little choice but to know each time you are spending something. These real-time tools, used in conjunction, are arguably better practice than balancing a checkbook on a Saturday morning.
If you let them be. The fact is that any of those tools require the user to make a conscious effort to sign up for these services, and to actually use them. And that’s where the “stop me before I do something foolish” process must begin. If we millennials want to be smart about our money, if we want to spend and save wisely, it seems to me we have no choice: We need to bridge that gap between what we spend and how we pay. We need to feel the connection between the value of our purchases and the effort it takes to make them.
Or in the words of these apps: We need to opt in.
Your Questions And Comments Are Greatly Appreciated.
Monty H. & Carolyn A.Go back