Exploring saving patterns for different types of savings goals

Background

Qapital is a personal finance mobile app that lets users set up rules to automatically transfer money towards a savings goal. When users set their savings goals, not only do they define how much they want to save and when they want to reach their goal, users are encouraged to create a title or label for their goal. Earmarking savings is one way to make it less fungible in our minds. Setting our savings aside for a specific purpose helps bolster our self-control because it provides us with a guideline for what we should use the money for, limiting our spending for other purposes.

We wanted to explore how different types of earmarking impact people’s savings behaviors. Qapital users can label their goals anything they like and, given the infinite possibilities of goals that users might enter, summarizing the reasons for which people are saving is difficult. We used a text classification algorithm from machine learning to categorize users’ savings goals. We started by manually classifying a subset of goals and then used a supervised learning algorithm to predict the categories of all the users’ savings goals in Qapital. We used the predicted categories for analysis of the different types of goals.

Key Insights

Most of the emphasis on earmarking focused on the backend, as a self-control measure to guide appropriate uses of savings. Interestingly, this analysis potentially suggests that the circumstances that inform how individuals label goals also guide their initial savings behavior.

Most people don’t have a defined emergency savings goal. However, this analysis suggests that once people realize they need to have emergency savings, they tend to make a more concerted effort to fund it. An emergency savings goal can focus savers more than a general savings goal by making them think about what target they might need in an emergency and to provide motivation to save quickly to avoid a financial emergency. We are looking for new ways to increase the number of savers with savings goals earmarked for emergencies.

Results

Using this approach, we analyzed the goals of nearly 800,000 Qapital users to identify the top categories for which people save using the app. The most common savings goal was just a general savings bucket, followed by closely by savings for travel or vacation. Other goals were less common – just 7% of Qapital users create an emergency savings goal, for example.

None of the labels preclude users from using their savings for a different purpose—general savings or a vacation fund could be used to cover an emergency. What is interesting, though, is that the labels that users apply to goals not only impact how the money might be ultimately used but also how it is saved from the beginning.

The analysis showed that while general savings and travel/vacation-related goals are much more common, they don’t necessarily lead to more savings. Users save about $140 more, on average, for goals labeled for emergency savings vs. general savings. This difference may partially be driven by the fact that users who set an emergency savings goal were also more likely to set a goal target amount. Only 67% of general savings goals have a target amount, while 88% of emergency savings goals set a target amount. Even still, the median target amount that users set for emergency savings goals almost $125 higher than the median target amount that users set for general savings goals.

Qapital users also save for emergency savings at a faster rate than they do for general savings goals. Users saved at a median rate of 55¢ per day for specific emergency savings goals, compared to only 47¢ per day for general savings goals. In fact, people tended to save faster for emergency savings goals than all six of the more common savings goals.