About a year and a half ago, the MIT Media Lab got a bunch of press for building a series of Bluetooth-enabled wallets designed to help promote responsible spending. One model, for instance, becomes physically harder to open as its user gets closer to the end of his or her monthly budget.
“We have trouble controlling our consumer impulses,” reads the project’s website, “and there’s a gap between our decision and the consequences.” Few consumers would argue with that. While the wallets are neat, the dawn of mobile payment technology promises to make them irrelevant. But, as our smartphones begin to double as wallets, the insight behind the Media Lab project – that technology can help us spend more wisely – will become more relevant than ever. If we’re lucky, we’ll see a whole slew of apps in the next few years in what I think of as the “good behavior” layer of mobile purchasing.
The fact is, we as consumers have a lot of room for improvement when it comes to how we spend our money. We buy junk food rather than nutritious meals; we spend too much on stuff and too little on experiences; we spring for a cup of coffee even though we swore we’d start making it at home; we don’t save nearly as much as we should, be it for retirement, education, or buying a house.
Pychologists and behavioral economists have studied the many ways in which we fail to optimize our financial decision-making, by succumbing to advertising or forming bad habits. But they’ve also prescribed things we can do to resist temptation.
In his book Predictably Irrational, behavioral economist Dan Ariely recommended a novel tactic to avoid impulsive credit card spending: put your credit card in a glass of water, then put the glass in your freezer. That way you’re unable to act immediately on your impulses; you’re forced to wait for your card to thaw before you can make any purchases. (This strategy was also employed by the main character in the 2009 film Confessions of a Shopaholic.) Ariely’s point in mentioning the “ice glass” method is not just to note the obvious – that we’re bad at sticking to our financial goals – but to suggest that we can employ tactics to help us save more, shop smarter, etc.
As wallets are replaced by smartphones, there’s no reason we can’t design apps to freeze our payments in just this way. Imagine if you could create a budget that would then be enforced by your phone. The software would simply not allow you to spend more than $X per month on shoes, or fast food, or whatever it was you wanted to cut down on. Or perhaps you wouldn’t “unlock” the ability to pay for dessert unless your phone recorded via GPS that you’d walked more than two miles that day (are you reading this RunKeeper?) Or before buying $200 worth of clothes at the mall, you have to watch a video of the tropical island that you’re saving up to visit. Still think you need all those shirts?
You could even self-impose your own personal “tax” on certain vices. Want to buy a cheeseburger? It’ll cost you an extra $5, which gets funneled directly to your IRA. The point is that the consumer would be empowered to set his or her own limits on spending in order to curb impulsive decision-making and meet financial goals.
All this might seem fanciful, but it really isn’t.
“The shift in consumer behavior with the rapid adoption of smartphones is undeniable,” Andrew Paradise, CEO of AisleBuyer, told me by email. AisleBuyer’s mobile technology lets shoppers scan items to learn more information about them before purchasing, and while much of the attention in this space is thus far around discounts, loyalty programs, and the like, there’s no reason the same technologies can’t be applied to improve consumer behavior.
Even with mobile payment in its infancy, there is one company here in Boston already focused on this space. Its name is ImpulseSave, and it allows users to transfer money from checkings into savings via text message, in an attempt to turn the idea of impulsive financial decision-making on its head.
“The entire world is designed to get you to spend more,” said Phil Fremont-Smith, co-founder and CEO of ImpulseSave. “Now we’re seeing, finally, the birth of a new generation of initiatives and products that are trying to level the playing field for the consumer.”
He believes that by simply making saving as easy as spending, consumers will begin to do it more.
“A great portion of the battle is the simplicity of literally making the act of doing something good with your money just as easy and accessible and present as the option to spend,” he told me.
We’ve already seen web tools that help people motivate themselves, like stikK, founded by Yale economists, that sells “Commitment Contracts” whereby users can incentivize themselves to reach their goals by putting some money on the line that they generally only recoup if the goal is met.
But even that is rudimentary compared to what mobile phones, and in particular mobile purchasing, makes possible. When your wallet is a computer, the limits of how it can help influence and even helpfully restrict what you buy are endless. All you need are apps designed to keep you on your best behavior.