The Rise of 'Spendfulness" Is Rethinking Traditional Budgets
3 Interesting Personal Finance Articles To Start Your Week
This is a new format I am experiencing, where each Monday I will round up three recent articles discussing personal finance that I want to give you my thoughts about.
If you have any articles you think I should cover in future newsletters, reply to this email and send them to me.
1. The ESG Exodus
In the first quarter of 2025, global sustainable funds experienced a record outflow of $8.6 billion, according to research by Morningstar. This significant withdrawal was driven largely by Trump, whose administration has aggressively moved away from climate and social initiatives.
Europe, despite accounting for most of the $3.16 trillion in global sustainable funds, saw $1.2 billion in net withdrawals, marking the region's first net outflow since at least 2018.
In the U.S., sustainable funds saw $6.1 billion in outflows, marking the tenth consecutive quarter of decline. Morningstar cited increased legal risks from actions such as executive orders targeting diversity, equity, and inclusion (DEI) efforts, along with poor performance in clean energy investments, as additional contributing factors.
The report also noted a market shift in perception of ESG (Environmental, Social, and Governance) strategies, with signs of consolidation, fund rebranding, and a slowdown in new sustainable product launches. Only 54 new sustainable funds debuted in the first quarter, down from 105 previously, while 335 existing funds underwent rebranding to de-emphasize ESG language.
This raises a fundamental question: Are ESG funds a genuine path to aligning investments with personal values, or are they susceptible to political and market volatility?
Research by Hartzmark and Sussman (2019) in the Review of Financial Studies suggests that while ESG funds attract investors seeking to align their portfolios with personal values, these funds often underperform compared to non-ESG counterparts, partly due to higher fees and sector exclusions.
I’ve covered this area of research and gave my thoughts on why I avoid not only ESG but any so-called ‘thematic’ investments here:
For everyday investors, this underscores the importance of scrutinizing ESG funds and remembering that at the end of the day, these are investments, and the primary job of investments is to make you money.
Giving (either your time or money) directly to causes you care about is a more effective way to connect with the causes you care about.
2. AI and Personal Finance Is a Double-Edged Sword
This article from the Financial Times discusses the growing role of AI in managing personal finances through the use of ‘smart money’ apps.
These AI-powered tools claim to assist users in tracking their expenses, creating budgets, and steering clear of financial missteps by analyzing their spending habits.
These apps aim to expand access to financial advice, particularly for people who might not otherwise seek or afford professional advice. Which, to be clear, is needed. Our current system of financial advice incentivizes professional advisors to the richest people in society, leaving the people who need help with money the most to fend for themselves.
However, despite their potential benefits, experts caution against several risks. These include concerns over data privacy, the possibility of biased financial recommendations, and users’ reluctance to entrust crucial financial decisions to automated systems.
Studies in behavioral economics suggest that people may exhibit "automation bias," where they over-rely on automated systems, potentially overlooking errors or biases inherent in the technology.
It's important to remember that AI is simply a tool and should be used to supplement (rather than replace) your personal judgment and taking responsibility for your own financial education. Like with any application of AI, if you rely on it to work through problems faster, it can be a great tool. But if you delegate all of your thinking to AI, it can lead to some very poor decisions.
3. The Rise of 'Spendfulness,’ a Rethink on Traditional Budgeting
YNAB (You Need A Budget), a personal finance app, is shifting away from the traditional term "budget" due to its negative connotations with stress, restriction, and guilt.
At a recent fan convention in San Diego, YNAB's team highlighted their rebranding strategy that focuses on empowering users through "spendfulness" — a concept combining mindful spending with intentional living.
It’s a pretty remarkable shift as the company has spent the last 20 years building their entire existence around the word ‘budget.’
Despite its rebrand, YNAB remains fundamentally a budgeting tool.
So, YNAB still believes you need a budget; they just want you to feel better about making one.
I am trying to decide if this is nothing more than a corporate marketing scheme, but having been a writer in the personal finance space for 10 years, I can tell you firsthand that people completely tune out when you talk about budgets.
People need a plan with their money, and rebranding the word ‘budget’ might help people take action.
Research by Soman and Ainslie (2001) in the Journal of Consumer Research supports this idea, suggesting that mental accounting and framing can significantly influence spending behavior. By reframing budgeting as a tool for intentional living rather than restriction, people might be more likely to engage with and stick to their financial plans.
So, whether it’s a marketing scheme or not, if it gets people creating and following through on financial plans, I am all for it.
That will do it for this week's newsletter. See you next Monday with 3 fresh personal finance articles.
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This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any significant financial decisions.
My financial advisor called it a spending plan, not a budget.
I like to think of my 'money plan' or 'wealth plan' rather than budget. Budget definitely carries the same baggage as the word 'diet' . . . .