Opinion | From personal finance management to proactive money management

Recently, I met one of my close friends from the US. During the chat, he showed me an app he uses daily for money management. I was fascinated by the way it functions and how it simplifies things in real time. In short, the US-based app is empowering its users by putting their personal goals at the core of the product, and then boosting their saving efforts with clever tips and tools rooted in behavioural psychology.

The functioning of the app just stuck with me and I came back to do my little research on where we stand in India on understanding the daily money management behaviour of our clients.

What I can see is that in India two thoughts are floating in the financial realm—personal finance management (PFM) and proactive money management (PMM). Though at first glance, both may seem the same, they are quite different. While PFM involves chalking out a budget, saving and spending, considering various risks and future life events, PMM refers to investments or purchases done primarily by “data-driven triggers” through high-end personalised apps.

Though we as a country are a little early on coming out with a full-fledged mainstream product like the US-based app, what I see is a gradual shift in approach in India. With whatever limited options we have with new-age apps, which provide real-time updates, our millennials are moving more towards PMM, creating a huge potential as a business.

The emerging trend can be attributed to the number of millennials in India’s population and the country’s workforce, and the amount of time they spend online. It’s to be noted that India is home to more than 400 million millennials, accounting for one-third of the country’s population and 46% of the workforce who spend an average of 17 hours online every week, which is more than two hours every day. Also, with 84% of India’s overall population having access to high-speed mobile broadband, the inclination is towards finding quick and effective money management solutions, providing instant gratification.

Next-generation artificial intelligence-powered apps can make further difference. With AI making deep inroads in almost every domain, it has radically changed the dynamics of personal finance. According to a PwC report, over 36% of financial institutions in India have invested in AI-focused technologies, with 70% planning to embrace it in the coming days. Here is what next-generation AI-powered apps and tools offer.

Track data to identify areas where you can save: Several personalised modern money management apps use AI to track seemingly unimportant behavioural data such as where you eat, how many times you eat and how many times you go for shopping, among others. Based on the information gathered, it tells you where you can save money. This information can help you act on an immediate goal that’s within your reach.

Offer actionable data insight: Everyone likes to buy and not sell. When it comes to money management, AI-powered apps offer actionable data insight which eliminates guesswork—essential for financial success. For example, the research platform of a leading asset management company has come up with a system that triggers signals when you can begin your systematic investment plan (SIP) or double the amount based on market valuations.

Provide information for personalised action: With personalisation, the new-age success mantra, coupled with the fact that investment and money management doesn’t follow a one-size-fits-all approach, AI-powered apps offer insight and advice that allow you to take actions tailored to suit your situation. For instance, based on your spending and savings habit, you get advice on avenues where you can invest to meet your lifestyle needs, aligning with your risk appetite and investment horizon.

Will the shift continue and the trend stay? In all probability it will. This is because of the convenience associated these tools offer. By giving you real-time data and tracking every financial habit, the apps answer your questions and present solutions almost instantly.

However, there’s some way to go before PMM becomes the mainstream norm of finance management in India. This is because, according to a CFA study, 70% of Indian investors still prefer to take advice of a professional adviser face to face, especially during a market downturn. For example, if you suddenly decide to stop your SIPs or lower the amount during a market correction, you may fall short of the desired corpus. In this situation, the experience of an adviser can come in handy and the PFM approach can be your saviour. With trust playing a crucial role when it comes to money management, PMM still has some miles to cover.

Rahul Jain is head, personal wealth advisory, Edelweiss