The Vicious Cycle of Not Following A Budget: A Field Discovery on Financial Wellbeing.
Field Work Module. UX Upskill Program at Hyper Island.
Description
Financial Wellbeing is a topic that represents a concern for late Generation X, Millennials, and early Centennials. We have three generations affected by slow income growth, questionably financial literacy, high cost of education, and homeownership, among other factors.
Understanding how this phenomenon affects developing countries inspired me to make this research in the Dominican Republic, my home country.
The Challenge
How might we create a service that delivers financial wellness and offers value that is meaningful for the user’s lifestyle?
Role
User Researcher
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Financial Wellbeing is a topic that represents a concern for late Generation X, Millennials, and early Centennials. We have three generations affected by slow income growth, questionably financial literacy, high cost of education, and homeownership, among other factors.
Understanding how this phenomenon affects developing countries inspired me to make this research in the Dominican Republic, my home country, and answer the question:
How might we create a service that delivers financial wellness and offers value that is meaningful for the user’s lifestyle?
This research was focused on individuals from both genders and with an age range between 21 and 45 years old, living in the Dominican Republic with at least one banking product. I conducted a survey and one-on-one interviews in order to collect quantitative and qualitative data around the topic of Financial Wellness.
This field discovery shows how users consider that being able to manage their budgeting, savings, and debts is the perfect trifecta to start their journey to financial wellness. However, despite that the users can recognize their importance, those same three elements are involved in their financial distress.
A common scenario of not following your budget was described by the users as the start of a vicious cycle of not having enough money to save and the reason to start getting into debt. We will be breaking down below insights, principles, and recommendations to be able to understand better this scenario.
My hypotheses and findings point to the three key elements, budgeting, savings, and debts. Let’s take a closer look at each one:
Budgeting.
In our hypothesis, we believed that clarifying where the money is going is important for our users.
It was discovered that 71% of our users consider that having complete control of their budget will help them get financial well-being, and yet only 16% of the users follow their budget to the last penny on a monthly basis.
The insights found around this hypothesis where:
1. Users create a budget of how much they want to spend on each category but don’t track them, and don’t know exactly how much they spend.
“The reason why I don’t manage my finances in a better way is that I have a hard time keeping track of what I spend. I know there are thousands of tools. I have downloaded ten thousand five hundred things, but since none of them are connected with my bank, it depends a lot on me. From my commitment to keeping track and honestly, I Don’t have the habit of keeping track, so I don’t know how to start it.” User 1
2. Users go out of budget because of unexpected expenses on leisure or emergencies.
“I don’t keep my budget organized. I don’t keep it in Excel, or in notebooks or anything. I know my fixed monthly expenses and those are the ones that I always have in some way under control. The other expenses are already my extra and that’s where it costs me a little, that’s when mishaps happen for me.” User 2
“Unplanned expenses keep me out of budget.” User 3
Saving Goals.
In our hypothesis, we believed that users define savings goals with a short-term bias.
When we asked our target for goals that they have saved money before in their life, “travel” and “car” were the two most voted options with a 64% and a 55% respectively. For a topic like “retiring” we had zero votes. Not even one of the persons that took the survey or were interviewed has saved actively for retirement.
The insights found around this hypothesis where:
1. Users set goals thinking about the next step in their life and don’t talk about long-term saving goals like retirement.
“I always define my savings goals based on how I visualize myself. What I visualize that I want to have or do or be in the next stage of my life” User 1
“Saving is a matter of decision. For what I have saved, the times I have saved, it has been for travel, it has not been for anything else.” User 2
“For now I am not focused on saving for retiring. First I want to focus on creating more ways to generate money so then I can expand my savings a little more.” User 3
2. Users see savings as a second thing. They will focus on their expenses and if they have money left, they will save it.
“I do not have the culture of saving. I can never save because I spend more than I earn. I end up saving very little or without purpose and I spend it” User 2
3. Users feel good when have saving goals and actually save for them.
“Saving money has made me feel good because is a plan for me. It is and to go paying something for a dream that I have, for a purpose that I have. Of course, I do not see it as a sacrifice, but rather it is something rather exciting” User 2
“Saving money makes me feel good, definitely good, I don’t even know how to explain it to you.” User 3
4. Users believe that having specific saving goals makes them respect that money and don’t use it for something else.
“At first my savings were pointless. So a pointless saving is a saving that you spend very easily because any little thing that catches your attention can take you out of your north and make you spend it.” User 3
Debt:
In our hypothesis, we believed that users want to stay away from debts.
39% of our users responded that they will always do everything to stay away from debts, and 26% answered that they often try to stay away from debts.
The insights found around this hypothesis where:
1. Users incurring debts because of emergencies or to get to the next step in their life.
“Necessity has made me go into debt. There are two types of needs that have made me move, one has been a real emergency need or a need from the next stage of my life.” User 1
“The times that I have used my credit card it has been for travel, to acquire an offer that at the moment I suddenly do not have the money, some emergency or something like that.” User 2
2. Users feel bad acquiring debts because of the fear of not being able to pay.
“My only debts are with credit cards. For me, it is very frustrating because I feel that I never finish paying them.” User 2
“Debts make me feel horrible. I cannot have debts, I feel uncomfortable, I cannot owe anything to anyone.” User 3
Principles
Here I share the principles that these insights gave for each of the hypotheses mentioned before. These are the foundation of how to create a service that delivers financial wellness and offers value that is meaningful for the user’s lifestyle:
On budgeting…
We need to give our users ownership of their budget.
We need to keep our user’s visibility of their finances.
We need to teach our users to set realistic expectations around finances.
On Savings…
We need to teach our users how to prioritize saving money and why.
We need to educate our users on long-term saving goals and why they are important.
On Debts…
We need to educate our users on how financing works.
Next Steps and Recommendations
1. Concept sessions on:
How might we give our users guidance on creating their budget?
How might we help our users to stay on budget?
How might we help our users to track their expenses without depending on their bank?
How might we help our users to create long-term saving goals
How might we help our users to use financing products accordingly
2. Choose two of the most promising concepts coming from that session to be prototyped.
3. When prototyping, implement design principles found in this research
4. Test prototype
My take on this topic
All this data tells the story of a segment of the Dominican Republic population that is banked. They have knowledge of what’s important to start the journey to financial wellness, and yet we see numbers that tell us the story of a financial distress vicious cycle:
84% of users don’t follow their budget every month
77% of users don’t save for their goals every month
70% of users have more than one financing product
The data recollected points that tracking expenses seem to be the starting point to being able to save for your goals. Only consider debts when you can actually commit to them and use them as a beneficial resource.
Right now, banks in the Dominican Republic don’t offer their customers a way to track and categorize their expenses. Solving this problem will give a huge advantage in the personal finances to users, where there’s clearly a need.
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If you are interested in details of how this research was carried out, here they are:
Timeline
Research methodology
Screening Survey
One-on-one interviews
Recruitment Criteria
Women and Men
21 - 45 years old
Has at least 1 bank product
Located in the Dominican Republic
Speaks Spanish
Recruitments Tools
WhatsApp Groups, LinkedIn, Word of Mouth.
*The identity and personal information of the users of this research are confidential.
