"Take control of your finances!" "Get your credit card debt under control!" "Move to a better, brighter financial future!"
Today's marketing mantras for personal finance software ring with the exhortatory power of 12-step programs run amok. That's a bit of a change from days of yore, when products like Intuit's Quicken were billed as handy-dandy checkbook balancers and a great way to keep track of receipts. Now they're all about escaping the "consumer debt morass." Once, personal finance software wanted to save us from paperwork; Now it wants to save us from ourselves.
It couldn't be happening at a better time. We live in the Age of Consumer Debt. The average American household owes over $4,000 on four different credit cards. Last year, 1.3 million people declared personal bankruptcy in the United States, a 20 percent increase over 1996. We are a nation in a spending frenzy -- encouraged all along the way by banks, car dealers, department stores and credit card companies.
Few dissenting voices are heard -- but among the loudest we can now rank Quicken and its ambitious competitor, Microsoft Money. Girded with Debt Reduction Planners and FYI Advisors, Quicken and Money are here to take arms against the sea of debt.
If the strategy works, millions of Americans might get their financial houses in order -- and prove, along the way, that there's money to be made in getting people to hold on to their wallets. But it's not quite a done deal. Intuit and Microsoft have made millions of dollars by persuading consumers to do away with messy pens and pencils. Now they want to make millions more by altering consumer spending habits. They may find, however, that their message -- debt is bad for you -- falls on deaf ears.
It doesn't take a ton of research to recognize that debt is a powerful consumer issue. When two-thirds of all Americans are carrying a credit card balance every month, that signals, loud and clear, the presence of a huge potential market.
"Everything we do is driven by consumer research," says Roy Rosen, a Quicken product manager, explaining why Quicken first introduced its Debt Reduction Planner. "We were looking at what consumers were interested in, and we started to recognize a much greater interest in getting help with credit and debt than in the past. And at the same time we saw that credit card balances were rising faster than income, and only a third of households were paying back their credit card balance. Those were pretty dramatic statistics."
"We had crossed the 9 million threshold," says Rosen. "When you have that many people using Quicken you are moving out into the mainstream consumer market, and you have to start addressing mainstream concerns."
Debt is clearly one of those concerns.
"It's a core need," agrees Julie O'Brien, a product manager for Microsoft Money. "It's absolutely something that resonates with consumers when we do usability testing and focus groups. Reducing debt is certainly at the top of the list."
Although the message sent by Quicken and Money marketers has become more explicit in recent years, the subtext for consumers of personal finance management programs has always been the same: These programs will put you in control of your money. And right now, Quicken is at the top of that list, commanding a dominant 80 percent of the market for "PFMs" -- personal finance management programs.
Quicken has reached that point by instilling a cult-like sense of loyalty on the part of users who can't imagine retreating back to a world of subtraction errors and shoe boxes overflowing with credit card receipts. They are grateful to the point of religious fervor. As Quicken "evangelist" Richard Katz declares, "The No. 1 thing I hear at user groups across the nation is, 'If there was a church of Quicken, I'd join it.'"
The ranks of devotees include finance experts as well as ordinary consumers. According to Scott Burns, a personal finance columnist for the Dallas Morning News, "If we did a survey I think we'd find a bimodal population when it comes to money management. One group is in over their heads and doesn't know the way out. You read about them in the bankruptcy statistics. The other group uses Quicken. Knows what their debts are. Is working on reducing them. And stops going out to dinner when the Visa register they keep in Quicken tells them they've spent their limit for the month on the 21st."
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Burns skewers the main point -- Quicken users "know what their debts are." Used correctly, a personal finance software program eliminates financial blind spots. And that act of self-knowledge paves the way to future liquidity. It's almost as if all you have to do is input the data, and you are debt-free. As consumer advocate Linda Sherry, the director of Consumer Action in San Francisco, notes, "Pie charts that make you see in four colors that you spend 25 percent of your income on clothes and you had better stop are really good."
"The act of recording everything has turned into a version of the Heisenberg Uncertainty Principle," says Quicken user Patricia Richter, "where the act of measurement produces a change in and of itself."
"When I got Quicken," wrote another Quicken user via e-mail, "I owed about $10k on two credit cards, and quite a bit to a credit union and an
average amount on a brand-new car & house (I was making about $25k then). If not for Quicken, I'd probably have gotten over my head very quickly. In 3yrs, I went from feeling like I was a dumb-donkey (for getting myself into such a place) to, well ... YIPPEE!!! Praise Quicken! :)"
Praise Quicken, indeed. If the program can make those kinds of numbers add up, it should be able to do just about anything.
Interviews with users indicate that there is one single feature of Quicken (also available in Money) that trumps all others in terms of changing behavior: the ease with which the program makes it possible to see just how much you are spending in finance charges tacked on to your credit card debt.
"You never really know how much you spend in interest until you use Quicken for a bit," says one user. "Boy does it add up!"
Financial institutions love credit card finance charges, of course. Consumers are the only borrowers dumb enough to pay an 18 percent interest rate in today's economy, when most other interest returns hover in the 5 to 7 percent range.
"The credit card companies are making a fortune on it, as are the banks and finance companies," says Mark Eisenson, publisher of Good Advice Press and co-author of "The Banker's Secret," a primer on getting out of debt. "Almost anything you see advertised today comes with a note that says you don't have to pay right away -- the whole notion is that you should be in debt. Almost nothing that we see or hear during the course of the day tells us to spend less money."
"Recent statistics indicate that consumer debt has gone up 40 percent in the last five years," says Eisenson. "In a booming economy, consumer debt should be going down, but it's not. The more people have, the more they spend. We're talking about people who are going into debt willingly and joyfully. We are catching on to the notion that what we are supposed to do as Americans is spend ourselves into debt."
Indeed, if you're among that one-third of Americans who pay all their credit cards off every month, you're no better than a deadbeat, as far as the lenders are concerned. Their ideal customer is the one who pays the minimum fee, maintains a high debt load and never gets together the wherewithal to pay off the balance. According to consumer advocates like Linda Sherry, credit card companies are increasingly targeting "sub-prime" consumers -- credit card users who can't pay off their debts. These people are bad risks by definition -- but the longer they carry their debt, the higher their credit limits will be raised.
So spend more -- heck, buy that new computer you can't afford, and charge it to your credit card. Then install Quicken or Money, and find out that that was the last thing you should have done.
In the past, the message would have been subtle, a byproduct of pie charts or repeated clicks on the finance charge button. But now, Quicken and Money recognize the debt crisis as a major market mover. As a result, the software programs are now taking an activist approach.
If you decide to allocate $100 a month more to food in Microsoft Money's budget planner, the program will inform you that now you probably won't be able to buy that second house you were planning to
purchase 10 years from now. Quicken's Debt Reduction Planner will encourage you to pay off the highest interest rate debts first, and even advise switching your money out of a low-interest savings account and applying it against your high-interest debts -- a much more efficient use of your cash.
This is a different breed of software. Word processors, spreadsheets, e-mail programs -- they may strive to correct your spelling, but they rarely tell you how to lead your life. Quicken and Money are not only looking over your shoulder and giving you a friendly nudge; as they do so, they're going head to head with the reigning impulses of consumer capitalism. Stop the madness, they cry -- resist temptation! You have nothing to lose but your debt!
Could they succeed? Could the spread of clever personal finance software transform us all into sober consumers? Already, there are some signs that the current credit binge is beginning to abate. In the fourth quarter of 1997, credit card delinquencies -- payments overdue for more than 30 days -- fell to their lowest level in three years. The rate of growth of consumer debt has also slowed. But even though Quicken's Roy Rosen jokes that "we'd definitely like to attribute that to Quicken," the truth is likely more prosaic -- a combination of a booming economy and tightened lending restrictions.
Andrew Tobias, author of "Managing Your Money" (which spawned an eponymous personal-finance-software package), concedes that Quicken can help individuals with their own debt, but doubts that personal financial management software will influence national trends.
"Will it meaningfully affect U.S. consumption/borrowing patterns?" says Tobias. "Nah. A tiny bit at the margin is certainly possible, and to be desired, but that would be all."
Tobias dumps cold water on financial software evangelism, but there is one aspect he ignores. Perhaps the recent change in debt statistics is simply the result of smarter consumers who've paid attention to media coverage of the debt crisis.
"It's hard to say, it's a very new trend," says Gary Klein, a lawyer at the National Consumer Law Center. "I don't know whether we'll see decreasing credit card delinquencies as part of the longer term trend. My guess is that all of the publicity is convincing some consumers that incurring more debt is a bad idea, and that's why we're seeing a decline in the amount of consumer debt. Whether that's good for the economy or not is another question."
Well yes, there is that. If everyone stopped borrowing money to pay for their goodies, the U.S. economy would grind to a shrieking halt. There's a certain killing-the-golden goose factor associated with spreading the "debt is evil" message too effectively.
Of course, any such economic bubble-burst would also mean that
no one would have the money to buy Quicken or Money. But other factors are much more likely to slow wider adoption of these programs.
Both Microsoft and Intuit are trying to expand beyond their committed core users to a new, less financially savvy population, and those consumers may be a tough sell.
"I think that [the emphasis on debt control] marks a reach by Intuit and Microsoft to go beyond the -- what we call 'Quicken weenies,'" says Nicole Vanderbilt, a digital commerce analyst for Jupiter Communications, "who are people that are extremely interested in having control over their money and do it almost as a hobby. They are very into it."
But will the non-weenie population heed the call?
"Whether or not the general public would care to give up their temporary pleasures, even if Quicken made it obvious that doing so would enhance their financial stability, is another issue," says Mary Johnson, a small business owner who's been a dedicated Quicken user for years. "Would the average person take their Quicken reports to heart and decide they would rather invest in financial security rather than cable television, restaurant meals, Frosted Flakes, big yearly vacations, a television set in every room and lottery tickets? It is amazing how quickly the little things add up to lots of money; especially when those few dollars are invested for the long haul. But we are a nation of folks who have trouble denying themselves even the slightest pleasure, and I'm not sure Quicken can overcome that."
Even if financial software were able to teach people the principle of self-denial, its wider adoption faces a deeper obstacle: class.
"The first thing that occurs to me," says Consumer Action's Linda Sherry, "is that the way to avoid being in debt is to have a budget and be on a budget. Certainly these software programs help people to do this. But the types of people who get into this trouble often don't have much cash flow, and probably don't have computers. Simply holding out the enticement of getting out of debt may help the upper middle class, but it doesn't really solve the problem."
The so-called "sub-prime" consumers increasingly targeted by credit card companies, suggests Sherry, aren't the likeliest users of software programs that require expensive computers to run.
Ultimately, Quicken only helps those who help themselves -- and only changes consumer behavior among those who want to change. No matter how clever Quicken and Money become, they can't eliminate this fact. People who have already bought Quicken, suggest some analysts, are a self-selected group committed to doing something about their financial issues. They are motivated.
"If you're motivated, you can find software programs and various assistance," says Good Advice Press' Eisenson. "If you're not motivated to start with and you pick up the software, you look at it once and then you put it in the closet. It's kind of like a diet. You can pick up all of the diet books in the world, but if you're really not motivated to lose weight it's not going to help you, and if you are motivated there's no secret, you just have to eat less and exercise more."
Of course, there's a lot of money to be made selling diet books to the chronically overweight. It's always possible that Quicken and Money don't need to change consumer spending habits to boost their own sales.
All they need to do is convince a worried consumer to plunk down another $30 or $40 -- and then who cares if the program goes into the closet or not?
Still, even assuming Microsoft and Intuit are sincere in their desire to save us from ourselves, that's probably not enough to matter.
"I would like to think and I would be perfectly happy for both Microsoft and Quicken to put an end to the notion that more is better," says Eisenson. "But I don't think that is going to have an overall dramatic effect. I think that there are always going to be a group of people who want to be debt free, and there are always going to be a group of people who just want everything."
And everything is always available in America. Especially if you're willing to pay the price -- and the 18 percent interest rate.
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