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Thursday, June 4, 2009

Does Technology, Paradoxically, Promote Sloppy Financial Habits?

I used to be very meticulous in my financial recordkeeping, but now I have technology.

I came to that realization this morning as I was writing one of the few actual paper checks I write nowadays. It's a bit embarrassing to admit, but I don't even bother with a checkbook wallet or ledger anymore. For some reason I still maintain the habit of ordering the carbonless duplicate checks, perhaps because that gives me some sort of misplaced comfort of knowing I'm leaving behind at least some form of written transaction record. But I never look at the copies, and when I need to write a check I just pull the current lot of 25 out of the box and write one, and then put the rest of the blanks back in the box.

Thinking about all this today created a thought snowball that made me contemplate all of my day-to-day financial habits. About 15 years ago I was still writing a lot of checks and making ledger entries, but now online bill payments and automated debits checks all but entirely unnecessary.

And then there are debit cards. They are touted as a way of adding the discipline and limits of a checking account to the convenience of credit cards, but this is deceptive. With debit cards, even if you are keeping rough mental track of your balance, it's still a lot easier to spend money without thinking very much about what you're doing. And you're still slapping down a piece of plastic, which is several levels removed from the reality of physical cash or writing out amounts by hand and entering them into a ledger.

Ledger? I wonder if anyone uses them anymore. In the earlier days of ATMs and debit cards, I actually used to save my ATM slips and debit card transaction receipts in my wallet, and enter the transactions in my checkbook ledger whenever I had a spare moment. But Web banking put an end to all that. Why keep written records when most transactions show up online the same day, and you can check your balance with just a few clicks of the mouse? I can fling my debit card around cavalierly with an approximate sense of what my balance is so that I don't get it down below zero, and all the details I need are there when I need them.

And that confident feeling that the information is "there when I need it" is the crux of the potential problems that technology-centered personal finance can pose. The fact that the information is stored and easily accessible doesn't mean that I engage with it all that much or think much about how and where I'm spending my money, which creates issues with spending out of a checking account that are very similar to those associated with careless use of credit cards.

The old methods forced us to put more effort into spending money and more thought into how we were managing it. We had to reconcile our checkbook every month. The jargon of finance, like that of most disciplines, is highly metaphorical. and I think that its inclusion of a concept as rich in larger meaning as reconciliation is no coincidence. While reconciling my checkbook every month, I had to reconcile myself with how I spent my money, to confront myself with the question of whether I spent it wisely or not. But who does a monthly reconciliation anymore?

So I wonder just how much these resources that have supposedly given us so much more information about and control over our finances have really contributed, and whether the across-the-board ease of spending without thinking played a role in the dwindling saving rates and over-use of credit that caught so many Americans with their financial pants down when the current crisis hit.

And I wonder what the ramifications might be if you extend the same line of thought into the technology of financial management of businesses. Accountants, managers, CFOs, and executives have more access then ever to broader and deeper levels of financial information, both in big picture and detailed terms. And there are more permutations and combinations of the ways they can view and manipulate that information which, again, is "there when they need it."

But how deeply to they engage with the information, and do they make use of and analyze it in the right ways? Executive today can have as much detail on their desk each morning as they care to deal with. How were sales yesterday? Great! How are our expense-cutting measures working out this month? Excellent! Are we on target to hit earnings this quarter? Absolutely! Any inordinate issues with collections? None apparent.

A business can easily see which customers are its strongest, which are its weakest. Which products lines are taking off, which are stagnating. It's when you get into the trickier questions, like which customers have a profile that might indicate they could be more prone to default if the economy tanks or if credit gets tighter, that things get more difficult and require more of the kind of analysis that can't be automated as readily.

The automation of financial and managerial processes in business has on one hand raised the level of output per worker tremendously, but it follows from there that it has decreased the number of workers necessary to run those operations. Fewer workers mean fewer brains. And if fewer brains are engaging on a regular basis with financial data, crunching numbers and thinking about the nuts and bolts, perhaps the potential to spot a problem and intervene before it becomes a crisis is diminished.

And if we take this line of thinking, which started at the level of an individual and moved on to the level of a company, and extend it to the level of an entire economy, perhaps it can teach us something about some of the factors that got us where we are today. Sphere: Related Content

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