A new concept could replace PFM in its current form.  

Is there anyone who hasn’t read a blog post or white paper about how personal financial management (PFM) is dead? PFM tools have come under fire because of their flawed and not so user-friendly features. No wonder that customers are still not fans. They largely ignore the possibilities PFM offers or, worst of all, have no clue about it. 

The whole concept of digital money management needs to change. PFM expects customers to do all the legwork and make all the decisions. That’s hardly fun. Frankly, who can define a budget limit for themselves? How would I know my proper limit? Only if I do some research on my past spending. This takes a lot of time. And how many people will set up saving goals manually? That would take a lot of effort and thinking. 

A new approach 

Some suggest existing PFM systems could be saved with some serious upgrades. But there might be a better solution. 

Customer alerts should be the backbone of intelligent money management services of the future. We don’t really need PFM screens, functions and charts anymore. It is more efficient if the system simply warns me when needed and then takes care of everything for me.  

Customers could be warned, for example, when unplanned costs put making ends meet at risk or savings may run out early. They could be alerted when they reach their monthly budget limit because they have eaten out too often, used Uber too much or simply spent more than usual. All this without bothering with any pre-configurations. 

The next generation of money management tools must also be able to identify periods when customers tend to spend more, for example, during summer holidays or ski trips, before birthdays or Christmas. Clients could even receive tips on when to start saving up if necessary. 

How does it work? 

Banks must be able to proactively address their customers’ money management issues and offer them tailor-made solutions, making use of the wealth of existing customer data they have. Data-driven money management can help clients respond to life events and offer much-needed guidance on spending, budgeting and setting saving goals.  

Functions should rather focus on explaining these findings and advices then giving various configurations possibilities and analytical tools which scare off everyday users. 

Banks could also define long-term saving goals for customers – for example, buying their first car or home, and putting money aside for retirement – based on their personal profile and current spending habits. This would even remove the frustration of thinking ‘What should I be saving for?’. 

The point is that the system must detect or recognize the life situation when these functions could be of interest or useful to customers, and free them from having to set up, track or look up these functions themselves. 

Why does it matter? 

Demand is still high for smart money management solutions. Take young people, who are less experienced with money, for example. Two thirds of university students with a maintenance loan say debt would be less stressful if their bank offered a digital money management tool, according to a survey by UK software firm Intelligent Environments.  

Millennials may be considered budget-conscious but a staggering 49% of those surveyed by US lender Revere Bank use offline methods, like a spreadsheet, when budgeting for future expenses, while 36% has no determined method of budgeting.  

(A survey conducted in 2014 by Novantas amongst 3000 bank shoppers confirmed the need for PFM amongst millennials considering a new bank or credit union)

Money management tools should require less work from millennials or any other age group, for that matter. It shouldn’t be the client doing the actual management. The solution? Proper data analytics could work miracles in customer engagement and the take-up of money management services.