Archive for October, 2012

Open Personal Financial Data: How The Government Can Enable Innovation

October 24th, 2012

Sophie Raseman, US Treasury Director for Smart Disclosure (and fellow Yalie), challenged the audience at Money 2020 to invent the next GPS or NOAA of personal finance. What does that mean? Well, she went on to explain that both location data and weather data are published by the US government for personal and commercial reuse. Each has fueled a ton of innovation and value ($90bil+/yr and $30bil+/yr respectively). Wow!

And what is key, for example with GPS, is that while the first generation solutions may “only” be slightly better versions of the maps, it get better. The next generation is allowing innovation like the self-driving car which has clearly a whole different level of value. (She credits Tim O’Rielly with this insight.)

So, the question is what data set could the US government make available to enable a similar level of innovation in personal finance?

I think it is interesting to note that both the examples that Sophie gave were initially big projects to create a system for collecting/creating the data before it could be distributed. I think that there may be opportunities with data sets that the government already has that could cost at lot less to prepare for distribution. I’m guessing that there are quite a few that could be done with some IT work that is much less expensive than launching satellites or weather balloons.

The first idea that came to mind for me was IRS tax return data. The most relevant financial data set to me is my own. I believe that many people do not create a forward looking budget because they don’t have enough categorized information about the past. One of the big barriers to gathering the data is doing the work of data entry. (Witness the rise of PFMs such as Mint, etc.)

Here’s how it would work: when you login into your favorite PFM on the web, you’ll still be able to see the financial data from your financial institution accounts. You’ll also have an option to link your IRS data. Upon selection, it would redirect you to a IRS website that would authorize the access of that app to your tax return data for a fixed time and potentially only for certain fields. The authorization code could be a combination of taxID and AGI for last year, date of birth and/or address data. Then you would end the process back on the PFM site that would be better updated with a richer dataset to provide recommendations on budgeting, future savings and/or missed tax planning opportunities.

Anther example: you are applying for a loan online and are redirected to the IRS website for verification of income and/or identity. I’m sure you can think of others.

We’re living in a world where consumers increasingly expect applications to integrate with each other and conveniently share data. And the federal government is embracing the concept of individuals owning their data (see the VA Blue Button project to allow for transportability of digital medical records).

There is even at least one precedent for this type of individual tax data sharing. For example, the Department of Education is working with the IRS to retrieve tax data on families applying for federal financial aid applications. The FAFSA website links you over to the IRS website to authorize the sharing of the information between federal departments. (BTW, anyone who has used it I’m curious to hear any more details on the user experience.)

On a related note, bank and other financial service providers have a lot of data on how people spend money and so it would be even better if there was a clearly defined standard for publishing and sharing banking data for use with budgeting. So, while not a government dataset, there could be a Treasury supported effort to create that data standard.

I’m sure I’m not the first person to have these ideas although unclear to me if anyone is working on them? Is now the time? Does anyone know how far back the IRS has each person’s tax data in electronic form? Is it only available for those that filed electronically and any who filed on paper are on microfiche?

What other ideas do you have for datasets? Share them here or on Twitter #financedata.