Categorizing expenses is not a simple task.
Many times even when tasked with an excel file to keep track of my spending I would look through the bank statements with a vague sense of concern for the money being spent and with the inability to figure out on what!!
If it was hard for me to understand my expenses, I can see why the categorizations of many Personal Finance Management solutions are not always on point. In fact I have learned that there are big restrictions on the current technology in place, also bound by regulation, and that the easiest solution has always been defined by a best estimate of the merchant type.
When we decided to problem solve on this in Oval Money, we realized that we wanted a more human centric and actionable set of categories. This is because at Oval we believe that financial education is the best way to create an empowered individuals that will be able to make smart decisions.
To make sure Ovalers had a better overview of why they spend we wanted to focus on what expenditures they believe are necessary compared to others that they could have avoided, instead of just showing what percentage of overall expenses are on a specific merchant category.
To tackle the problem we decided that expenses should be assigned to a personal need, not to the category of a merchant.
We used the theory identified by a famous Chilean economist, Artur Manfred Max Neef, used to define the wealth of countries by how well these satisfy the basic needs of their people, to outline user spending under the following classification of fundamental human needs:
- Subsistence - the first physical need is nutrition
- Protection - the need to be healthy and maintain a physical wellbeing
- Affection - your home becomes the core that unites family and friends
- Understanding - education and learning bring to a need of self development
- Participation - the need to be active in the society by commuting towards places of common aggregation be it work or a journey
- Leisure - for all the needs that relate to the person, this one enhances the relaxation and enjoyment of the mind, through entertainment, and games
- Creation - communication and connection through services that empower your abilities, skills and your career
- Identity - define oneself through owning and belonging to customs, values and norms
- Freedom - the social equalizer, through income that satisfies the self sustainability need
We selected these needs as we believe that they are a constant through all human cultures and across historical periods. We do not believe in a hierarchy of needs (apart from basic survival ones) but more in a complementarity of needs that will be personal, and based on trade-offs.
With this inspiration in mind, we decided to select a limited number of needs and divide as below and the way people allocate expenses to these needs will define what trade-offs they are willing to take.
- Subsistence - FOOD & DRINK
- Protection - WELLNESS
- Affection - HOME AND FAMILY
- Understanding - SELF IMPROVEMENT
- Participation - TRANSPORT
- Leisure - LEISURE
- Creation - SERVICES
- Identity - GOODS
- Freedom - EARNINGS
This will help the Oval intelligent agent define and suggest personalized saving recommendations in the form of steps that users will be able to follow. Need based categorization and statistics, will facilitate the learning of users, and will make the information actually useful to act on.
Together with the categories Oval Money allows users to associate personal hashtags to the categories of spending and these tags are searchable, to allow the most personalized experience and help Ovalers #BeMoneyWise.
We believe this new way of thinking of user spending will make it so much more actionable and make it easier to create the steps that help Ovalers save. By moving away from the what, and more into the why we shift the focus back to the people and their needs, just the way we believe finance should be!