Sunday, 24 November 2013

Does the number of bank accounts affect your ability to save?

I came across an interesting article and research paper recently from the University of Kansas that concluded a person with a single account would save more than a person with multiple accounts.  The research suggests the reason is people have a strong desire to spend money for immediate gratification and having multiple bank accounts introduces enough fuzziness or vagueness in knowledge of their finances to allow them to more easily make purchases because of incomplete information.

I could be in trouble.

Between my wife and I, we have 3 bank accounts and that’s not including RESP, RRSP and other special accounts.   The research does suggest that some people are more comfortable with handling multiple accounts than others.  We are a perfect example of both groups.  My wife asks me fairly often which account she should use to pay for something or do we have enough money for X whereas I normally have a good idea on “how we are doing”.  I admit I’m the one paying all the bills so I have an advantage in having this knowledge but I think my wife and I just view money differently.

Multiple accounts definitely still do have a place in savings strategies (e.g. short term vs. longer term, taxable vs. non-taxable, regular expenses vs. discretionary) but what’s important is to have a consolidated view of your accounts and finances to eliminate this vagueness.  This idea is reflected in a lot of personal finance articles talking about calculating your net worth on a regular basis to understand your financial situation.  

Wealthy people understand this idea.  One of the key services demanded by them and offered by their financial advisors is a “consolidated” view of their accounts or finances and not just once a year but as part of their monthly statements or on-demand.  Many banks have already recognized this need by offering an summary view of your accounts when on-line or via paper statements.  There are also many good software packages available to help you determine your net worth or account aggregator software to help you combine your accounts from different institutions.  So lots of evidence this is a need.

Based on our discussion, we reach some of the same conclusions as research below:

  • Minimize your number of accounts
  • Maintain a frequent consolidated view of your accounts to eliminate any vagueness/fuzziness

Want to read more about this?  Check out the following:

No comments:

Post a Comment