Can Your Phone Fix Your Finances?

Spend less, save more, get out of debt: these are the top financial goals for under-35s this year, according to recent research. Pretty standard New Year money resolutions, really, but on the back of new findings that the average UK household owes more than £13,000 and that millennials need to be saving twice as much as they are already if they’re to make it through retirement comfortably, these goals are more important than ever.

But despite our best intentions, who hasn’t frozen in horror when they’ve checked their bank balance after a big weekend? Or momentarily panicked that their credit card has been compromised when the bill comes through, only to realise with dismay that yes, all those charges are completely legit? Looking at your finances can be painful – it’s no surprise that more than a third of Brits have no idea how much money leaves their accounts every month.

Nonetheless, the way we engage with our money is changing. Gone are the days of poring over nonsensical acronyms and lines of gibberish on paper bank statements. Those brave enough to monitor their outgoings on the reg probably do so with a mobile app. In fact, customers are using banking apps more than 7,610 times per minute and experts predict that, come 2020, we’ll see more than 2.3 billion mobile banking logins per year. This means the number of in-branch visits is dropping significantly – more than 1,000 bank branches have closed in the UK in the last two years. The future is digital, and personal finance is no exception.

Major banks have finally clocked on to our love affair with our phones, and some even offer budgeting tools alongside their standard banking app: Santander’s Spendlytics, for example. But the UK’s traditional financial institutions aren’t known for their forward-thinking – even the longest-established banking apps are clunky and restrictive – so it’s no surprise that a raft of pioneering fintech (financial technology) start-ups have zoomed into view, offering genuinely useful, borderline sci-fi ways of managing your money.

Unlike traditional budgeting tools which involve the user inputting everything they spend with punishing, tedious regularity, this new generation of money management apps uses artificial intelligence (AI), spend forecasting and a wealth of numerical jiggery-pokery to take the sting out of saving and put you firmly in control of your finances.

Take Cleo, for example. Cleo is an AI-based app that securely links to your transaction data to spot spending trends and habits and help you keep track of budgets. You communicate with Cleo via text message, asking her (it?) questions like "How much have I spent at Pret this week?", "What have I spent my money on this month?" and "How much cash do I have left for the month after my bill payments come out?" It’s like having a free, non-judgemental accountant at your beck and call.

Then there are apps that aim to make saving easy and painless. Moneybox is leading the pack when it comes to ‘round up’ apps in the UK (they’ve been big news in the States for a while). Spent £3.75 on a sandwich? Moneybox rounds that up to an even £4 and puts the 25p into a stocks and shares ISA. Dropped £19.50 at the pub after work? The app will squirrel away 50p on your behalf. ‘Little and often’ is the name of the game here. According to Moneybox, users make around 30 transactions a week, with an average round-up of 28p – saving £8.41 a week, or £437.32 per year, without even trying.

And finally there are the apps that do it all for you. Plum, billed as the first AI-powered personal finance chatbot, ‘lives’ in Facebook Messenger (where you probably already spend a lot of time). As with Cleo, you can ‘talk’ to the app about your money; it monitors your daily spending, learning your habits, then every few days – based on its ‘findings’ – deposits a small and unmissable amount of money into your Plum savings account.

Chip works on the same ‘microsavings’ principle. You can pause automatic saving at any time and ask the app to increase or decrease the amount it saves at the touch of a button. And like all good apps, Chip has a social element. You start with an interest rate of 1%, which you can boost to 5% by inviting friends: you'll get an extra 1% for each person that signs up with your code.

Of course, many people would be wary of giving a robot control of their savings account. Can an app really tell the difference between the occasional splurge and a regular Friday-lunchtime treat? How can it possibly factor in irregularities such as holidays and birthdays? But Chip is so confident in the algorithm’s ability to calculate exactly what you can afford to save that it offers the Chip Overdraft Guarantee: If Chip makes an automatic saving that causes you to go into your overdraft, they’ll replace the money immediately, pay your bank’s charges and deposit a £10 savings bonus in your account to say sorry. They have a lot of faith in their number-crunching, then.

“One of the conventional wisdoms of budgeting and saving is planning how much you want to spend in a typical month, but the fact is, no one has typical months,” explains Dominic Baliszewski, Director of Consumer Strategy at Momentum UK, creators of Moneyhub, a financial planning app that pulls together all your accounts to create a complete picture of your overall money situation. “Planning ahead can seem like an impossible task, but apps like these help you understand what you’re actually spending your money on – as opposed to what you think you’re spending your money on. As they say, knowledge is power, and these apps take away a lot of the fear and stress of managing your money, turning the negative into the positive.”

Do these apps represent the future of personal finance? Dominic thinks so. “We’re very rapidly moving towards a world where customers may have their money with a bank but will use a third party app to understand what their money looks like, to transact, to save, to invest. Old-school methods of banking are on their way out.”

It won’t happen overnight, Dominic says, “but the influx of these apps to the market definitely signifies a shift. I think that’s a very strong indication of where things are going to go, and anything that gives people more control over their finances in these difficult times can only be a good thing.”

Remember that viral video last year of a girl talking her best mate out of buying another pair of shoes? These apps are a far less brutal version of that video – a voice of reason helping you make better money decisions, and with minimal effort, too. If only they could make a similar one for dating.