The overlooked costs of automatic payment tools

Users looking for additional control over their finances may be getting less than they bargained for

The overlooked costs of automatic payment tools

Those who read the Investment Industry Regulatory Organization of Canada (IIROC) and Accenture’s recent report on the evolution of advice might recall a note about millennials — those between 1982 and 1995. Aside from overtaking Baby Boomers as Canada’s largest living generation, the report said millennials bring with them “an increased comfort with digital offerings and increased demand for transparency and control over the wealth process.”

Putting “digital offerings” and “transparency and control” within a single sentence implies that technology provides a financial dashboard for users to keep tabs on their finances. But as The Wall Street Journal reported recently, that’s not necessarily true — particularly when it comes to automated transactions.

“When my parents paid their utility bill, they had to take out their checkbook, put pen to paper, write a check and then record it in their checkbook,” wrote Wall Street Journal columnist Kevin McAllister. “My utility bill is paid automatically from my banking app. For me to know how much my utility bill is, I have to be willfully diligent.”

And there’s the rub — not just for utility bills, but for many other types of payments. The problem, McAllister argued, is that delegating personal finance to running-in-the-background technology makes it so much easier to ignore. Automating transactions has cut the connection between the things people buy and the act of paying for those things.

On paper, tech-based finance tools should be giving users more control over their money. But in real life, they create an “out of sight, out of mind” problem that members of previous generations never had.

“My parents and others of their generation describe to me a process that would entail three separate points of contact whenever they swiped a credit card: first, at the cash register, then when a bill came in the mail and finally when they wrote a check to cover it,” McAllister wrote. Each occasion, he said, forced them to consider how wise any given purchase was and how it impacted their account balances. The physical acts of opening envelopes, uncapping pens, and signing checks, he added, created a routine that strengthened the impression of financial decisions in people’s minds.

While the new generation’s approach certainly eliminates daily anxiety and ensures that payments aren’t missed, it can also foster a blissful ignorance of where one’s money goes. And while the active process that’s increasingly becoming relegated to the yesteryears makes people ponder whether what they’re paying for now is worth the hassle they’ll be contending with later, the hassle-free nature of automatic payments erodes that kind of long-term thinking.

“The good news is that what technology has taken, it can also give,” McAllister said. Many personal finance apps can categorize purchases, generate spending reports, detect when financial trouble is brewing because of a recurring payment, and send notifications of each automatic payment made — as long as the user enables the features.

“[I]n the words of these apps: We need to opt in,” McAllister said.


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