Artificial intelligence (AI) has been making headlines in recent months. As AI develops into a more sophisticated tool, it’s natural to wonder how this technology might impact financial advice. If AI can answer other questions, can it be trusted to provide worthwhile financial advice?
Let’s explore how AI interacts with financial advice.
The investment industry is working to harness the power of artificial intelligence in the financial planning space. With the help of generative AI, like ChatGPT, people can find answers to basic personal finance questions.
But the introduction of AI into the space is relatively new. As with anything new, there have been some bumps in the road. Not all ChatGPT answers about money are correct, and the question of personalization brings the value of a human advisor into focus.
AI financial advice is something new in the personal finance space. While there are certainly some questions, you can find reasons to trust AI.
Some of the most basic money advice is straightforward. For example, you’ll likely find adequate advice on why you should save more money, build your credit score, or create a budget.
Of course, you might not need AI to tell you some of these basic principles. But if you need some advice about basic money concepts, you might find what you are looking for through an AI tool.
If you already have a basic understanding of financial literacy, then you might already have the language you need to pull correct answers out of an AI tool. For example, you might be able to find the contribution limits to your 401(k) through an AI tool. But if you aren’t sure what a 401(k) is or realize there are contribution limits attached, then you may not know how to find the answers you need.
Of course, there are also reasons to be skeptical of AI financial advice.
Generative AI has the goal of giving you a plausible answer to your question. While you might find a possible answer, it’s not guaranteed to be the correct answer.
Financial management is a deeply personal experience. Everyone has a different financial situation and unique goals for their money. It’s impossible to convey your entire financial picture to ChatGPT, which means the tool lacks a complete picture of your finances. Without the right context, you will likely find blanket advice that may or may not apply to your situation.
Without a few examples, it’s hard to understand how AI financial advice stacks up. In the sections below, you’ll find ChatGPT’s answers to several questions about personal finance and my opinions in response.
Planning for retirement is a key part of a healthy financial picture. Here’s what ChatGPT and I had to say about this big question.
“Planning for retirement is an important step to ensure financial security and peace of mind in the future. Here are some steps a 30-year-old can take to start planning for retirement:
Remember, everyone’s financial situation is unique, so it’s beneficial to consult with a qualified financial advisor who can provide personalized guidance based on your specific circumstances.”
The answer provided by ChatGPT was surprisingly robust. With this ten-step plan, most 30-year-olds would be equipped to start saving for retirement.
I especially liked that the tool recognized that everyone’s retirement planning needs are different. With a wide range of individual circumstances, the tool advises savers to work with a human professional to nail down the details.
Saving money is a key part of building financial freedom. Here’s what ChatGPT and I had to say about this question.
“Determining the percentage of your income to save depends on various factors such as your financial goals, current expenses, and overall financial situation. While there is no one-size-fits-all answer, financial experts generally recommend saving between 10% to 20% of your income.
Here are some considerations to help you determine the appropriate percentage:
Ultimately, the percentage you save should strike a balance between your financial goals, lifestyle, and current financial obligations. It’s important to regularly reassess your savings plan as your circumstances change and to adjust the percentage accordingly.”
In terms of how much you should save, ChatGPT gives you a lot to think about. The answer kicks off with a general guideline of saving between 10% to 20% of your income, which is in line with what the Consumer Financial Protection Bureau and most experts recommend.
But the answer gives you breathing room to help you determine what the right percentage is for your goals. The recognition that your current financial situation and future financial goals have an impact on your savings decisions is an important message to get across.
Homeownership is a significant financial decision. Here’s what ChatGPT and I had to say about this question.
“To determine if you can afford to purchase a house, you need to consider several factors, including your income, savings, expenses, and the housing market in your area. While I can’t provide specific financial advice, I can give you some general guidance on what to consider:
Remember, these are general guidelines, and it’s advisable to consult with a financial advisor or a mortgage professional who can provide personalized advice based on your specific circumstances and local market conditions.”
In this answer, ChatGPT specifically says, “While I can’t provide specific financial advice, I can give you some general guidance on what to consider.” Essentially, this recognizes the key flaw in relying on AI (and the internet in general) for financial advice. It’s impossible for ChatGPT to take all of the unique factors of your situation into account when asking for basic financial advice.
It’s clear that ChatGPT can provide you with some food for thought. For example, prospective homebuyers should be looking at their overall financial situation, saving for a down payment, and running the numbers on their housing costs. But this basic information is only enough to get you started on a home-buying journey.
Also, ChatGPT mentions that most buyers will need a 20% down payment. But according to a recent report by the National Association of Realtors, the average down payment for first-time homebuyers in 2021 was only 7%.
AI financial advice isn’t always completely accurate. When you ask questions about personal finance, you’ll find general answers with lots of information to digest. Instead of getting a definitive answer, you might walk away with information that will help you make a decision.
If you have a handle on basic personal finance concepts, the general statements made by AI might not help you resolve your question. But if you are new to the world of personal finance, it’s difficult to know whether or not the information you are receiving is completely accurate or relevant to your situation.
With these flaws, AI financial advice should be taken with a grain of salt. While most of the information presented is true, the lack of personalization means the answer you receive might not be relevant to you.
The reality is that AI technology is evolving every day. As AI technology improves, financial advice from this tech might be more trustworthy in the future.
It’s impossible to predict the future. AI financial advice may provide a baseline of knowledge to consumers. But as of now, it seems unlikely that AI could replace the human touch of financial advising.
As of writing, financial advice given by AI should be taken with a grain of salt. While basic information might be true, it’s difficult for AI to offer personalized advice for your unique situation.
Managing your personal finances efficiently can transform your life. As AI technology develops, it’s tempting to use this tool for financial advice. While you can find helpful information about money through ChatGPT, it’s not personalized advice that might help you move forward. Before taking any financial advice from ChatGPT, do your own research on the question to find the best answer for your situation.