PFM tools started out, you'll recall, as software packages like Intuit Quicken or Microsoft Money, but the latest buzz is around either bank-branded services or bank independent sites such as mint.com.
Back in the day, Microsoft Money was shipped on pretty much every Windows machine. Interestingly, one or two people actually used it. But not many, and that was sort of strange because all the research at the time suggested that one of the main reasons
people bought a PC was to manage their money. Whatever the reason, it's a great study in the difference between what people say and what people do.
It wasn't that there was a lack of competition. In fact, some commentators contemporaneously suggested that the demise of desktop PFMs was brought on by ‘featuritis'. Incredibly, Quicken introduced call and put option scenarios! Whereas, received wisdom
suggested what was actually needed was more simple ways of managing one's main income and expenditure.
Although Intuit continued with its desktop product, they hedged their bets in 2009 as well, dramatically buying mint.com for USD 170 million.
And so began the next generation of solutions such as mint.com and a growth of in-house offerings such as Lloyd's Money Manager, PNC's Virtual Wallet and hybrids like Bundle.com.
It's fair to say that a few lessons have been learnt about feature-richness, and certainly true that offering a decent user experience is seen as important. And the in-house offerings are getting better. Banks have clearly been spurred on to concoct similar
offerings, if only motivated by the threat of disintermediation.
But is hasn't been plain sailing for the new kids either - a bunch of wannabes have crashed and burnt in this space - Rudder, Wesabe, Kublax etc. At the same time, banks are currently investing heavily with no real certainty of the latent demand. It's
a bit like ‘Field of Dreams'. Only arguably less entertaining.
Here's my niggling concern: How many of us actually either want or are able to ‘manage our money'? If the number of people who actually appreciate tools to budget, plan and analyse is quite small then is PFM really any good (for the majority)?
There is research to suggest we approach money in different ways. At the low-income segment, it has been identified that some people are ‘budgeters', others are ‘jugglers' (that is to say they lurch from one financial priority to the next). Similar differences
are apparent at other income segments. Credit Agricole's successful and innovative online private bank BforBank.com promotes self-directed financial management at the top-end segment and bucks conventional wisdom that high earning, time-poor individuals would
always opt for the traditional private banker approach.
Personally, I fall into the segment of individuals that give only sporadic and peripheral attention to finances until the major outlay such as buying a car or house looms. I have an unscientifically-founded, but sneaking, suspicion this segment is pretty
sizable. It covers most of the people I know at least. Here's the rub - the new generation of PFM tools still require you to put quite a lot of effort in to get anything out. And for that reason, ‘I'm out'.
So in my opinion for PFM to ‘be a good thing' and succeed, they either need to be sure to appeal to a big enough target market of keen budgeteers or offer something pretty ‘auto-magical' that suits the rest of us.
I like the concept behind banksimple.com's Safe-to-Spend. It takes a forward-looking perspective of your likely outflows to help you understand in one figure (your Safe-to-Spend balance) your ‘spending cushion'. It certainly makes you think again about
the notion of ‘Current' or ‘Actual' balance. But expenditure is not always predictable and equally past trends not always representative of future flows. So the auto-categorisation of income and expenditure, the analytics and the predictive science need
to be pretty sturdy.
Bottom-line? I think there is mileage in tools that help us manage finances - as long as they don't assume we want to spend a lot of/any time doing it.