To give people more control over their ability to save beyond the traditonal banking model. An idea that accounts for the fact that people are both rational and emotional spenders.

Problem

Many individuals have difficulty saving for important goals and rack up significant levels of consumer debt because they do not have good budgeting skills. Default banking is an idea that is a simple concept - individuals can set up simple positive financial defaults in a visual way that encourage saving for things like education, retirement, major future expenses and paying off debt. Allowing individuals to make positive choices ahead of time greatly lessens their capacity for catastrophic short-term financial decision-making. The primary target group for this project is first-time wage earners and young families; however the concept is more broadly applicable.

Solution

The solution is a simple concept: a single bank account (per client or per family) that allows the user to access via internet a visiual representation of their money. The account is subdivided into folders - virtual cookie jars - earmarked by the user for specific uses, a "Main" folder, "education", "clothing", "vacation", "credit card repayment", "retirement", etc. Each deposit automatically subdivides into the folders. A folder can have a cap (e.g. "Clothing": $200) so once a target is achieved, money flows to the folder of highest priority. The user predetermines how much flows into each folder and the formula can be altered once per month. When purchases are made via debit card, money flows out of the "Main" folder. If the Main folder is depleted, access to the account is either restricted or money comes out of folders in order of reverse priority. The program could be enhanced by a 2-week financial literacy workshop for willing pre-screened participants.

Example

A significant percentage of people will spend whatever money is available to them unless they effectively cap their spending. Allowing an individual to pre-restrict their own ability to spend encourages more intelligent financial choices. And by giving individuals control over the positive defaults they set, they become the primary architect of their own financial future. Users set financial targets for each folder - e.g. Clothing: $500; Education: $10,000; Vacation: $1000. Once a goal is met, the individual can purchase without feeling guilty or nervous about sacrificing other goals. The system helps eliminate financial excuses for lack of action or advancement in an individual's life. It also gives them a powerful tool to evalutate their decision-making process, whether their life goals are realistic given their current financial means and insight into what life changes may need to be made in order for those goals to become more realistic.

Marketplace

Banks and credit unions are my primary "competitors", but they are also potential allies. The idea is so simple, and the basic technology exists, that I am unsure why it has not already been implemented. Banks potentially lose out on account transfer fees by allowing the user unrestricted manipulation of funds, but they could still charge a similar level of interest. Furthermore, banks could charge a higher monthly fee for access to this type of account. This model could be set up within the existing banking system or a not-for-profit organization could adopt it, and set up a quasi-banking entity, that uses interest and/or monthly fees to offset the cost of product development and administration expenses.