Banks are going to great lengths to prod young customers to make budgets.
For instance, if you are a client, the Royal Bank of Canada has a Facebook app that can tell you how many of your friends like American Idol, and it will give you this information in a pie chart.
Launched on Facebook in March, myFriend Tracker is designed to give customers a tool to tally their social currency the same way its online banking app, myFinance Tracker - launched last year - tallies their money, the bank says.
The Facebook app allows users to compile a slew of stats, such as how many of their status updates were "liked" in a month. The goal behind it, however, is to raise awareness of the finance tracking tool.
Banks have been pouring resources into building online budgeting tools - RBC's was two years in the making - and they want to see them pay off. They hope customers will come to depend on these apps and that this will make them less likely to switch banks. The lenders also see a future in which the tools will help them sell more financial products.
But while these tools were built with bottom lines in mind, that doesn't mean they can't be useful for customers who are trying to get a better handle on their finances.
Indeed, these kinds of tools have the capacity to revolutionize budgeting. Not only do they save hours each month tracking expenses, they also make it easier to establish new habits.
It's a welcome development. Experts say budgeting has become a dying art in our time-crunched, credit-happy world. A solid budget is essential for the average young person looking to accumulate wealth.
"Building wealth is the ultimate goal, but it does start with smaller steps," notes Geoff Dillon, senior director of retail markets at Canadian Imperial Bank of Commerce. "It starts with taking care of the day to day and month to month."
"We know that people generally struggle to budget, [and]people generally overspend," says Andrew Irvine, vice-president for integrated distribution at Bank of Montreal.
Socking away a little bit extra each month at a young age can make a world of difference.
The first step toward getting hold of your finances is to understand where your money is being spent and where you could cut back.
Using RBC as an example, online banking customers can see graphs that show how much they spend on food or entertainment or clothing. The tool automatically tracks and categorizes debit and credit transactions.
People see it and say, "Oh my God, I had no idea I was spending $3,000 a month on my pet," says James McGuire, vice-president of digital strategy at RBC. In fact, nearly every time the reaction is, "'I had no idea I was spending so much on … fill in the blank,'" he says.
But that's just the beginning. Customers are also able to establish a budget and track their spending. They can set customized e-mail alerts that might, for instance, warn them when they've hit 100 per cent of the amount they wanted to spend on restaurants, or when they've spent $300 on groceries.
Customers could also set an alert for when they've reached 70 per cent of their budget in any category, Mr. Irvine says.
BMO's program also will help customers figure out how much they need to save to raise $30,000 for their wedding. Or how long it will take to buy a flat-screen TV if they save $85 a month.
BMO has just launched its own social gimmick - it allows customers to compare their spending to that of their peers.
"Let's say I'm in my mid-30s, I earn $100,000 a year and I'm a male who lives in Toronto. I can actually compare myself to other males who are in their mid-30s who earn what I earn in Toronto, and compare my spending and saving patterns with theirs," says Mr. Irvine. "Do I spend more than people like me on home improvement or grocery shopping or dining out, for example?"
RBC is beefing up its finance tracker so it will compute customers' net worth using figures such as the value of their home and car and the size of their mortgage. And soon the tool will be able to track customers' progress toward saving for a new car or a vacation.
It won't be long before the tool helps customers figure out what to do with the savings they manage to accumulate, potentially creating an opportunity for the bank to pitch its wealth management products, such as mutual funds.Report Typo/Error
Follow us on Twitter: