AI And Personal Finance - A High-Tech Clamor For Money Advice
A profound shift has occurred in the way individuals manage their personal finances. From intelligent budgeting and investment strategies to risk assessment and fraud detection, AI and personal finance keep an important relationship. Still, while AI has undoubtedly enhanced the efficiency and accessibility of personal finance management, there are also challenges to consider.
Author:Gordon DickersonReviewer:Frazer PughSep 05, 20233.3K Shares92.5K Views
The transformative intersection of technology and finance can be lucidly seen when discussing AI and personal finance.
Nowadays, Artificial Intelligence (AI) takes center stage in revolutionizing the way people manage their individual money, their own home budget, and their stakes in private businesses.
People are now living in an era marked by unprecedented data availability and computational power.
AI has emerged as a game-changer, empowering individuals to make smarter, more informed decisions about their financial well-being.
The captivating realm of AI and personal finance explores how this partnership is reshaping financial landscapes and empowering individuals to navigate their economic journeys with unprecedented confidence and precision.
AI In Finance
Artificial Intelligence (AI) refers to the simulation of human intelligence processes by computer systems.
It involves creating algorithms and models that enable machines to perform tasks that typically require human intelligence, such as:
- learning from experience
- making decisions
- recognizing patterns
- solving problems
AI has made a significant impact on the finance industry. No wonder AI and personal finance are partnerships made in the field of high technology.
AI revolutionizing how financial institutions:
- operate
- make decisions
- provide services
As the Paris-headquartered Organization for Economic Co-operation and Development (OECD) states on the Foreword of Artificial Intelligence, Machine Learning, and Big Data in Finance, a report it published in 2021:
“„The deployment of AI in finance is expected to increasingly drive competitive advantages for financial firms, by improving their efficiency through cost reduction and productivity enhancement, as well as by enhancing the quality of services and products offered to consumers.- Organization for Economic Co-operation and Development (OECD)
According to this OECD report, from a staggering $50-billion global spending on AI in 2020, it has been estimated to balloon to over $110 billion in 2024.
That’s just barely a year from now!
When considering the role of AI in finance, several important factors come into play:
a. Algorithm Selection
Machine Learning (ML) is a subset of AI that involves the development of algorithms and models that enable computers to learn from and make predictions or decisions based on data.
Choosing the right AI algorithms (step-by-step instructions or procedures that are designed to solve specific problems using AI techniques) is crucial.
Machine learning techniques (e.g., regression, decision trees, neural networks, and reinforcement learning) can be applied to different financial tasks, such as:
- risk assessment
- fraud detection
- portfolio optimization
These algorithms and techniques are applied in AI and personal finance.
b. Quantitative Finance and Trading
AI algorithms play a role in:
- quantitative analysis (the process of using mathematical and statistical techniques to analyze financial data and make informed decisions)
- market prediction
- algorithmic trading/algo trading or automated trading (the use of computer programs and algorithms to execute trading strategies in financial markets)
VentureBeat reported in March 2022 that per a 2020 study conducted by the American financial services firm JPMorgan Chase & Co., by 2024, the market for algorithm trading would be worth $4 billion.
However, the unpredictability of financial markets means that AI strategies should be carefully validated and managed.
c. Education and Skill Development
The finance industry needs professionals with a strong understanding of AI to harness its potential., especially now that AI and personal finance are now a new trend.
Upskilling the existing workforce and incorporating AI education into financial curricula are important steps.
d. Risk Management
AI can enhance risk management by analyzing vast amounts of data and identifying potential risks more quickly and accurately.
However, the introduction of AI also introduces new types of risks, such as:
- cybersecurity threats
- algorithmic biases (systematic and unfair outcomes produced by algorithms due to underlying biases in the data they are trained on or the way they are designed
e. Human-AI Collaboration
AI can automate routine tasks and provide insights, but the human touch remains essential, especially in complex financial decisions. Financial professionals need to work alongside AI to make informed judgments.
After all, AI and personal finance should be all about sound financial decisions.
f. Customer Experience
AI-powered chatbots, personalized recommendations, and automated services can enhance customer experience. However, maintaining a balance between automation and human interaction is necessary to cater to diverse customer needs.
AI has brought about transformative changes to the finance industry.
Still, its implementation requires careful consideration of data, algorithms, and human collaboration - among several other things.
Striking a balance between automation and human expertise is crucial for leveraging AI’s potential while maintaining the integrity and stability of financial systems.
Personal Finance Industry
Before tackling the details of AI and personal finance, here’s first some information about this sector in society.
The personal finance industry encompasses a wide range of services, products, and information designed to help individuals:
- manage their financial resources
- make informed decisions
- achieve their financial goals
It includes various sectors, such as:
- banking
- investing
- insurance
- retirement planning
- budgeting
The primary objective of the personal finance industry is to provide individuals with the tools and knowledge they need to effectively manage their money and build wealth over time.
It will no longer be surprising if AI and personal finance have found their way into any of those business organizations.
Business magazine Fast Company’s 2023 list of Most Innovative Companies include 54 categories, with 540 organizations making it on the list.
One of the categories is finance and below are the magazine’s ten most innovative personal finance companies in 2023 and the reason why Fast Company declared them so:
| Personal Finance Company | Why Innovative? |
| American Express (New York) | “for winning over Millennials and Gen Z” |
| AcreTrader (Arkansas) | “for mainstreaming farmland as an asset class” |
| SoFi (California) | “for hitting its stride as an all-in-one money management solution” |
| First Republic Bank (California) | “for proving the value of old-fashioned customer service” |
| Quartr (Stockholm, Sweden) | “for democratizing due diligence” |
| kevin. (Vilnius, Lithuania) | “for reimagining payments infrastructure” |
| Anyfin AB (Stockholm, Sweden) | “for using screenshots to refinance debt” |
| Fennel (California) | “for democratizing ESG [Environmental, Social, and Governance] investing” |
| Trust & Will (California) | “for making it easy to leave a legacy” |
| Hometap (Boston) | “for giving homeowners cash when they need it” |
Concept Of Personal Finance
Personal finance refers to the management of an individual’s or a family’s financial resources.
It encompasses the strategies and decisions people make to achieve their financial goals and maintain their financial well-being over time.
These strategies and decisions make up AI and personal finance.
Effective personal finance management is crucial for achieving:
- financial stability
- securing future needs
- pursuing long-term aspirations
The key concepts in personal finance include:
a. Budgeting
Creating a budget involves outlining expected income and categorizing expenses.
It helps individuals track where their money goes and ensures that spending aligns with financial goals.
b. Saving
Saving involves setting aside a portion of income for future needs or emergencies.
It’s important to establish an emergency fund to cover unexpected expenses without resorting to debt.
c. Investing
Investing is the act of putting money into assets (e.g., stocks, bonds, real estate, or mutual funds) with the aim of generating returns over time.
Proper investment strategies can help build wealth and achieve long-term goals.
d. Debt Management
Responsible borrowing and effective debt management are crucial.
High-interest debts like credit card debt can become a financial burden, while low-interest loans for assets like education or a home might be considered investments.
Planning for retirement involves estimating the amount of money needed to maintain a desired standard of living after one's working years are over.
e. Retirement Planning
Planning for retirement involves estimating the amount of money needed to maintain a desired standard of living after one's working years are over.
Retirement accounts, such as 401(k)s and IRAs, play a significant role in building a retirement nest egg.
f. Insurance
Insurance safeguards against unexpected events that could lead to financial losses.
Health insurance, life insurance, disability insurance, and homeowner’s/renter’s insurance are examples of policies that can offer financial protection.
g. Tax Planning
Understanding the tax implications of financial decisions is crucial.
Strategies like tax-efficient investing and taking advantage of tax deductions can optimize one’s financial situation.
h. Estate Planning
Estate planning involves preparing for the distribution of assets after death.
This may include:
- creating a will
- setting up trusts
- designating beneficiaries for accounts like life insurance policies and retirement plans
i. Financial Goals
Setting clear financial goals helps individuals prioritize their:
- spending
- saving
- investment activities
These goals can range from short-term objectives like paying off debt to long-term goals like buying a home or retiring comfortably.
Effective personal finance management involves creating a comprehensive plan that aligns with one's values, priorities, and life stage.
It requires ongoing monitoring and adjustments as circumstances change.
Ultimately, the goal of personal finance is to achieve financial security, freedom, and the ability to pursue one’s desired lifestyle and goals.
When they work together, AI and personal finance can make things a lot easier.
AI And Personal Finance
With the rapid advancement of technology, particularly in the realm of AI, an increasing number of people are turning to AI tools for personalized financial advice.
In fact, Fox Business reported in 2023 about a study validating the strong relationship between AI and personal finance.
Intuit Credit Karma (Intuit bought Credit Karma in 2020 for $8.1 billion) commissioned Qualtrics to conduct a study. It’s about which areas in the lives of Americans does AI become most helpful.
The results:
| Area of Concern | Percentage |
| personal finances | 40% |
| food and nutrition | 27% |
| health | 27% |
| workplace productivity | 21% |
This trend reflects a growing recognition of AI’s ability to:
- analyze vast amounts of data
- provide tailored recommendations
- assist in making informed decisions about budgeting, saving, investing, and overall financial planning
The traditional approach to financial management often relied on consulting human financial advisors, which could be both costly and time-consuming.
However, the emergence of AI-powered financial tools has democratized access to expert financial insights. Thus, AI and personal finance become an outstanding tandem when it comes to sensible money-related decisions.
These tools leverage machine learning algorithms to process:
- historical and real-time financial data
- economic trends
- individual spending patterns
Consequently, they offer users a comprehensive view of their financial health and suggest strategies to achieve their goals.
One of the primary attractions of AI-powered financial advice is its adaptability.
These tools can be programmed to consider various financial scenarios and provide guidance based on specific goals, whether it’s:
- paying off debt
- saving for a major purchase
- planning for retirement
Moreover, they continuously learn and refine their recommendations as they gather more data, ensuring that the advice provided remains relevant and up-to-date.
Supriya Gupta, vice president and general manager of Core at Credit Karma, told Fox Business:
“„Generative AI really helps democratize access to financial help that can be pretty costly otherwise and inaccessible.- Supriya Gupta
Gupta added that AI and personal finance make an excellent partnership of sorts as “costly financial planners might be out of reach” when people need financial help and advice.
The study by Qualtrics also provided information on the treatment of Americans (the respondents) on AI and personal finance.
The table below shows how they want to use AI when it comes to money matters:
| Area of Concern | Percentage |
| paying debts payments | 27% |
| budgeting and managing expenses | 26% |
| planning one’s retirement and optimizing savings | 25% |
Two more significant things that the study revealed:
- 44 percent of Americans want to get answers right away to their financial queries
- 30 percent of them want an immediate understanding of their “overall financial position across multiple accounts and types of investments,” as stated by Fox Business
This is what Gupta was trying to say: that financial planners can’t possibly entertain and reply to all inquiries at just any given time.
Still, this shift towards AI-driven financial advice is not without its considerations.
While AI tools offer convenience and potentially more cost-effective solutions, some individuals may still prefer the human touch and emotional connection that traditional financial advisors provide.
There’s also the critical factor of data security and privacy, as users entrust their sensitive financial information to these AI systems.
As more people recognize the benefits of AI-driven financial advice, the financial industry continues to evolve.
These are all competing to develop and offer cutting-edge AI tools that cater to diverse financial needs:
- financial technology (fintech) startups
- established financial institutions
- tech giants
Therefore, people and organizations should tread carefully when it comes to AI and personal finance.
Based on the study by Qualtrics, Americans, despite embracing AI, still expressed concern over the following:
| Area of Concern - AI’s Red Flags | Percentage |
| “lack of personalization” | 27% |
| “inconsistent quality” | 26% |
| “redundancy” | 23% |
With the right balance between technological innovation and personalized human interaction, AI-powered financial advice has the potential to revolutionize the way individuals manage their money and work towards their financial aspirations.
People Also Ask
What Problems Can AI Solve In Finance?
According to an article by the University of San Diego, artificial intelligence helps the finance sector in the following problems:
- cyberattacks
- fraud
- human error
- overspending
- wrong loan risk assessment
How Does AI Affect Investing?
AI affects investing by “revolutionizing” it. That’s how real-estate investor and stock trader Michael Ligon puts it in his July 2023 Forbes article.
According to Ligon, the impact of AI on investing includes:
- fraud detection improved
- algorithmic trading redefined
- data analysis refined
- latest investment strategies can be easily obtained
Will AI Replace Humans In Finance?
In its march 2023 LinkedIn article, FinanceINME, a financial services company from Qatar, listed those workers in the financial industry whose jobs may probably be replaced by AI:
| accounting clerks | financial analysts |
| bookkeepers | loan officers |
| customer service representatives | stock traders |
Final Thoughts
In recent years, the connection between AI and personal finance became clearer and stronger.
AI has revolutionized the way individuals approach personal finance, offering tools that enable better decision-making, more efficient management, and improved financial outcomes.
It’s still essential, however, to strike a balance between embracing AI’s capabilities and addressing the ethical and security considerations associated with its use in personal finance.
Nevertheless, the dynamic synergy between AI and personal finance not only streamlines processes but also opens doors to new realms of possibility.
Gordon Dickerson
Author
Frazer Pugh
Reviewer
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