AI can impact your financial situation — if you don't use sound judgment

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Q: With AI becoming so popular, I’m tempted to try it out for more than just essay writing help at university. I think I’m pretty good with my money, but life is expensive. I see ads that AI-enhanced apps can help me, but I don’t know enough about them to decide whether I should depend on AI for good advice or not. Is AI actually a tool I could use to improve my finances? ~Marcus 

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A: The emergence of artificial intelligence, or AI for short, has been a gradual process over the past 60 years. Toward the end of the pandemic, ChatGPT exploded in popularity and demonstrated significant practical, user-friendly applications for AI. As with any new technology, AI has caused excitement and concern, and how you feel about it may, in part, depend on how you envision using it.

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A generative AI tool like ChatGPT could provide suggestions to help you budget better where AI-driven recommendations on a shopping app or website can help you find the perfect gift. A robo-adviser on an AI-driven investment platform might improve the performance of your investment portfolio. However, to help mitigate the risks, the responsible use of AI when it comes to your money, combines financial literacy skills and human judgment before making any decision based on a machine’s crowdsourced intelligence.

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With that in mind, here’s what to consider as you decide how much to rely on AI for financial decisions.

AI can generate incorrect information

Think about the process of shopping for a particular appliance model and researching customer reviews online. Your search engine might provide information collected through AI. However, if a prominent negative review discourages purchasing that model or avoiding a specific retailer, the AI algorithm lacks the ability to verify the accuracy of the shared information.

The same thing can happen when a student writes an essay using AI, on a topic they aren’t familiar with. That student isn’t able to discern whether AI has given them correct information or helped them write a paper with a failing grade.

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Before relying on any information gathered from AI sources to make a purchasing decision, verify through independent sources what you’ve learned so that you don’t end up wasting money. Read product reviews on discussion forums, talk to experts, ask friends and family, and check rating sites that verify users with an account before they can create posts. Nothing is foolproof but doing research on multiple platforms mitigates the risk of falling for AI disinformation.

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AI can provide valuable insights

It’s easy to find fault with AI but when it comes to personal finance, AI can empower users to make more informed decisions, streamline how they manage their money, and make advice more accessible.

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Before relying heavily on AI systems, gain a thorough understanding about their limitations and risks. For instance, AI lacks the ability to make value or emotional judgments. While an AI chatbot can analyze your budget and allocate debt payments to achieve specific repayment goals, it cannot grasp the emotional benefits of extending your debt-free timeline to spend more time with family rather than take on a third job. It pays to always validate AI recommendations with human expertise.

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AI plays a crucial role in fraud detection, particularly with bank accounts and credit cards. It enhances security by detecting unusual patterns or fraudulent activities, safeguarding users from financial scams and unauthorized transactions. However, due to the extensive personal data processed by AI systems, there’s a risk of compromised financial information if security measures fail. Stay vigilant and protect your data by using strong, unique passwords for each account and avoid saving payment information in apps, social media accounts, or on websites. To minimize the risk of your voice or image being exploited by those with malicious intent, err on the side of caution and limit how much you share overall.

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Artificial Intelligence has the potential to reshape how you approach your finances. Through automated budgeting and personalized suggestions based on your spending habits, AI can accelerate your progress toward financial goals. For instance, it might recommend adjusting your discretionary spending to allocate more funds toward savings or debt repayment. It could offer budgeting or spending tips based on your normal habits. However, it’s essential to recognize that AI isn’t infallible. While it can provide valuable insights, AI-driven recommendations for subscriptions or online shopping may inadvertently encourage impulsive spending. Maintaining a critical eye on your overall financial plan and balancing AI-driven advice with your own judgment remains crucial.

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What to Do When Your Financial Goals Feel Unrealistic

AI algorithms can be flawed

AI systems, which are programmed by humans, rely on a database of advice that can contain errors, sales content, and biases toward specific products, services, or strategies. While accurate sources are included in the database, they may not always provide optimal suggestions tailored to Canada’s financial system. AI is extremely expensive to create and maintain. Consequently, AI serves the interests of its owners, which may not necessarily align with your best interests.

For example, imagine the significant flaws an AI algorithm would have exhibited if it had provided investment advice during notorious financial frauds such as Enron, Theranos, and the years leading up to Nortel’s collapse. These investments were heavily endorsed by experts and featured prominently in financial publications, resulting in substantial losses for investors. Had AI relied on these expert opinions to offer investment assistance, the damage could have been even more severe.

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In the early days of the Internet, the saying you can’t believe everything you read online, highlighted the prevalence of incorrect or biased information. This sentiment holds even more true for artificial intelligence. AI is merely a tool and should be treated as such — it cannot replace sound judgment and wise decision-making.

The bottom line on depending on AI for managing your financial affairs

Imagine someone from a century ago encountering a modern kitchen equipped with a refrigerator, microwave, stove, blender, bread machine, and other smart appliances. It might appear that these devices could effortlessly prepare meals at the touch of a smartphone button. However, reality is different. While these appliances assist and simplify cooking, they cannot replace your role. Similarly, AI enhances efficiency and offers alternatives you might not have thought of, but it still relies on your decision-making. When it comes to your financial future and well-being, no one should be more invested than you.

Related reading: 

What Can “Throwback Thursday” Reveal About Your Spending Habits? 

How to Increase Your Level of Financial Literacy 

Tips and Tricks to Improve Your Money Skills 

Peta Wales is President and CEO of the Credit Counselling Society, a non-profit organization. For more information about managing your money or debt, contact Peta by email, check nomoredebts.org or call 1-888-527-8999.  

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