My Savings Goals: Mental Accounting Trick Or Practical PFM?

A new, PFM-style automatic savings tool from ING Direct aims to breakdown behavioral barriers to savings, but is it really useful?

ING Direct and its new owner, Capital One, have rolled out a new tool to help Orange Savings Account and Kids Savings Account customers plan and save for specific items.

The new My Savings Goals tool allows customers to quickly and easily set up specific savings target. For instance, a bride-to-be might plan for her trip down the aisle with a personalized goal named “Wedding,” establishing a budget and timeline, as well as amounts for monthly, weekly or bi-weekly automatic contributions to fund the account. The system is much like the savings tools incorporated in Personal Financial Management (PFM) platforms like Mint and Smartypig.

Step 1: Name the Savings Goal – The user picks the type of goal they are saving for and gives it a nickname.

Step 2: Calculate the Goal – Users choose how much they want to save. They specify the goal amount, start date and end date, then the system calculates how much needs to be contributed and how often. Alternatively, users can specify how much they are willing to contribute to their goal and how often and the system will calculate the date the goal will be reached.

Step 3: Track the Savings Journey – Customers can watch their goal countdown ticker and monitor their savings progress in a tracking graph that highlights the amount saved.

As a customer reaches savings milestones at 25%, 50%, 75% and 100%, emails are sent to congratulate and motivate them on their saving progress points.

If a customer wants to change the amount or frequency with which automatic transfers are made, they can edit their savings goals at any time.

Overcoming Behavioral Blockers to Savings

Bri Williams, a consultant specializing in the application of behavioral economics in everyday business situations, thinks ING Direct is on the right track. To get financial consumers to save more, Williams says banks have to overcome our “behavioral blockers” — namely our laziness and tendency to think short term.

According to Williams, ING’s new savings site overcomes the behavioral blockers by using the following techniques:

  • Vividness. Consumers are more likely to act if they can readily comprehend the outcome. By graphically representing a savings goal and allowing people to personalize it with nicknames, ING helps bring the goal alive. There’s a big difference between saving for a “Ski Trip” and a “New Car” than having it all lumped into one generic account.
  • Hedonic Framing. Consumers get a bigger rush from many separate gains than a single one of equal value. By splitting the accounts into specific goals, ING is improving the customer’s willingness to save because there are more opportunities to attain success. For savers, bite-sized chunks work best — continual emotional reinforcement.
  • Hyperbolic Discounting. Consumers are impatient. That means people tend to prefer realizing gains now (immediacy) more than waiting for larger gains later. (A great example of this comes from C1 Bank, who offered a new Mercedes Benz as prepaid interest on a CD.) Consumers would rather whittle away at smaller balances rather than work towards a larger target that feels too far away and abstract.

Analysis

My Savings Goals is a pretty basic tool. While it may be easy for customers to learn and use, its usefulness is questionable. The big hitch is that users can only specify one savings goal per account. If you want more than one savings goal — say for instance, one for a “Vacation” and another for “College Fund” — you’ll have to open two savings accounts.

ING Direct seems to feel this is no big deal. “You can have as many goals as you like, but you can only have one goal set up per account (Orange Savings Account or Kids Savings Account),” the bank explains. “The good news is you can have as many accounts as you’d like — for free.” So that means you’ll have an Orange Savings Account #1982302302 for the “Vacation” goal, and another Orange Savings Account #198237785 for the “College Fund” goal.

If customers need to open separate accounts for separate savings goals, what’s the point of having the My Savings Goals tool? It’s little more than a calculator that divides amounts contributed by the total amount of the goal. As SmartCompany points out, the My Savings Goals app is really just a mental accounting trick. It functions as a simplistic psychological device, but that doesn’t mean it’s practically functional.

What’s equally frustrating is that the savings goal tool isn’t truly integrated into ING customer accounts. Creating a goal does not trigger any kind of recurring auto-transfer. ING Direct will suggest users fund their goals by creating automatic transfers from one of their other accounts, but this requires leaving the My Savings Goals tool and going back to your Orange Savings Account. If the system was really useful, My Savings Goals would calculate the necessary auto-transfers, then present users with a button: “Create a [monthly/weekly] auto-transfer for [$X] now.”

The system won’t even send you reminders about scheduled contributions. The only notifications users receive are when they’ve achieved 25%, 50%, 75% and 100% of their goal… which is great for savers who have goals that are neatly divided into four perfect quarters. But what about someone who is contributing a set amount monthly? Or someone on a five-year plan? Why not send little notes congratulating people for each contribution? “Attaboy! You’ve saved $XXX, and you’re now X% of the way there. Keep it up!” If someone is trying to save $10,000 over two years, getting an email once every six months isn’t sufficient reinforcement, at least not for most savers.

Clock Ticking on ‘ING Direct’ Brand in U.S.

Capital One acquired ING Direct early in 2012 for $9 billion. At the time of the acquisition, ING Direct was the largest direct bank in North America, with over 7.6 million customers and $83 billion in assets.

Capital One can continue using the ING Direct name for only a little while longer.

“The name will gradually have to change over time,” a spokesperson told Time magazine. “Legally, due to the acquisition, we’re only allowed to use the ING Direct name for about a year after closing.” That time will be coming sometime around winter or spring 2013.

It’s interesting that Capital One continues to invest in the ING brand. Marketing materials for the My Savings Goals tool are heavily branded in ING’s signature orange style. Considering the ING Direct’s cache and reputation, you can’t blame Capital One for wanting to milk it for all it’s worth… right down to the last second. But you have to wonder how consumers will react when they see the My Savings Goals rebranded in just a few months. Getting people to adopt a new technology is hard enough as it is. People generally hate change, so the inevitable rebranding of My Savings Goals will surely be a source of irritation to some.

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