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Mental Accounting in Financial Products: How to Treat and How to Beat

by Reka Kosik

10 June 2020 13:13pm

Each of us handles money according to personal mental biases. We view income from different sources — earned, bonuses, and gifts — by different rules. And thus, divide our income into different virtual categories for spending — groceries, clothes, transportation, entertainment, etc. based on those mental accounting biases.

Mental accounting is the cognitive process of how we compartmentalise our income and spending within our brains.

We shuffle from a savings compartment to a spending one and justify it with a thought. Though mental accounting makes our lives easier by simplifying the transactions in our minds, and thus, it helps us gain some extra headspace, it also tends to trick us into false perceptions about the true value of money when it’s coming from different sources.

Knowing all this, we can say that understanding the mental process that your users or potential users go through to manage their money helps in creating great financial products. When it comes to designing the customer journey or the user interface of an app, including the right features helps users manage their finances more wisely, eliminating the distorting effects of mental accounting.

Let’s see what these are:

1. Categorise budgeting and spending

Mental accounting biases affect how people spend and save money. When designing an app, allow users to generate and name categories that match their mental ones. It should also identify and deduct fixed costs to show money remaining for the categories. Have the interface show users their monthly spending in each category as a percentage or graphic to help them track their spending.

For example:

Let's say a user sets up three spending categories — Groceries, Restaurants, Transport, allocating the following budgets to each: £670, £200, £100. As transactions occur in each category, a record is kept of spending locations, the amount is deducted, and the new amount reflects the percentage remaining. After 10 transactions, £502 remains in Groceries, or 75%; £22 in Restaurants, or 11%; and £65 in Transport, or 65%.

2. Introduce Safe Spending feature

Helping users understand that income from any source is still income, and as such, is interchangeable, is important. Deducting fixed or recurring costs and financial goals off the top of the actual monthly budget helps users achieve targets by identifying what is left or "safe to spend."

For example:

If the user’s monthly income is £2,000, deducting fixed or scheduled costs (rent, utilities, etc.) of £800 and £300 towards financial goals (gadgets, education, real estate, etc.), the app does the maths and calculates what is called a "safe-to-spend budget" — the remaining £900 that can be split among different essential and non-essential categories.

3. Add investment goals

We use mental accounting pockets to allocate savings as well as expenditures, so an app with a goal-oriented savings interface will make monetary decisions easier to target. Tangible targets combined with achievable deadlines are more doable than something intangible or involving risk. Assigning a specific date instead of a random 5-months or 5-years helps bring it into focus.

The interface needs to allow the user to create and identify their goal-oriented savings or investments and then display them in one location. Users should be able to input the goal amount and fix a date for achieving the goal. The app can then deduct the monthly "payment" and move it to a goal-oriented savings account.

For example:

Let users set the goal, cost, and date to acquire — they want an acoustic Guitar, which costs £1,500, by 15/12/2020. The app determines the monthly financial allocation based on the time frame: with 6 months left to reach the goal, that means £250 is required to be saved per month.

Feedback and visual progress reports are other important features an app should include. These can be "Congratulations" screens or special badges that users will get after reaching their specific financial goals.

To help you imagine how these features can look like in real-life, we created a basic goal-based investment flow, relying on the above-mentioned guidelines.


Personal finance apps that allow users the flexibility to label categories reflective of mental accounting biases are more likely to get attention on the market. Interfaces that show and track monthly expenditures and encourage goal-oriented budgets help users achieve targets and begin to take control of their spending and saving.


financial services
App design and development
User Experience Design
UX / UI Design
Mobile App Design
App Design
digital product