Are Generative AI Tools In Personal Finance Game-Changers Or Risky Bets?

Economic challenges like inflation, recession fears and geopolitical uncertainty are top of mind for many as 2024 draws to a close. A recent Deloitte report found that 73% of respondents globally are concerned about rising prices, reflecting the financial strain on households around the world. Against that backdrop, generative artificial intelligence is emerging as a popular tool in personal finance, reflecting the evolving ways in which people think about budgeting, investing and financial planning.

However, while the technology is advancing rapidly, experts caution that these AI tools should complement — not replace — traditional strategies.

Generative AI in Personal Finance

Generative AI tools like Google Gemini, Cleo and ChatGPT are helping people simplify complex financial decisions. For example, Gemini (formerly Bard) can analyze large amounts of financial data, generate reports, make forecasts and provide tailored recommendations. Meanwhile, Cleo combines humor and data-driven insights to engage users in their financial journeys.

“Generative AI is revolutionizing personal finance by empowering individuals with tools to make more informed decisions,” says Benjamin Susanna, global head of retention at Equiti. These tools streamline tasks such as tracking expenses, predicting budgets and creating savings plans.

At Equiti, for instance, Signal Centre offers trading ideas and market sentiment analysis. However, Susanna warns, “The human element — careful oversight and risk management — remains essential in navigating this evolving financial landscape.”

Is AI Changing User Behavior?

Barney Hussey-Yeo, founder and CEO of Cleo, sees generative AI as essential for building trust in financial services — a sector that historically suffers from low consumer confidence.

“Products that aren’t providing personalized insights won’t gain the trust and loyalty of younger customers — and you can’t do that without AI,” Hussey-Yeo says.

According to Cleo’s 2024 AI and Money report, 74% of Gen Z and Millennials are open to using AI-powered financial tools to manage their finances. Despite stereotypes of frivolous spending, 57% of Americans aged 18 to 24 say they’re already saving for retirement — and many are doing so with the help of AI.

Hussey-Yeo highlights Cleo’s approach, which includes smarter saving, wherein features like Save Hacks and Challenges encourage long-term financial habits, as well as its engagement features — over 30,000 users have reportedly declared “I love you” to Cleo, and the app’s playful “Roast Mode” has been shared more than 500,000 times on social media, says Hussey-Yeo.

“Some users engage with Cleo 20 times more than they do with their own banking apps,” Hussey-Yeo adds.

Gen AI in Finance: Opportunities and Risks

While AI-driven tools are marketed with their ability to enable better financial outcomes, experts urge extreme caution. Generative AI tools often rely on publicly available data, which can often be incomplete or inaccurate, creating potentially disastrous ramifications for financial health. Yuval Shuminer, CEO of Piere, points out that these tools sometimes oversimplify complex financial decisions.

“Generative AI has a bad habit of treating all financial trade-offs equally, ignoring the reality that these decisions are rarely black and white,” says Shuminer. “The opportunity lies in using AI with precision and thought,” he says, adding that AI is useful for specific processes such as cleaning up financial data, better understanding transaction categories, narrowing down options and presenting insights in clear, actionable ways.

Misinformation also poses a major risk. “If the AI makes a mistake or you phrase your question poorly, you could end up with advice that leads to bad decisions,” says Steven Kibbel, financial planner, entrepreneur and chief editorial advisor at Gold IRA Companies. “Over-reliance is another issue. People might skip doing their own research or talking to a professional because the AI seems so quick and convenient.”

Privacy is another pressing issue. Many tools require sensitive financial data, raising concerns about data security.

Lee Provoost, chief technology officer at Flagstone, advises users to start small. “For many, the idea of handing over your savings goals or bank account management to a bot feels alien and uncomfortable,” says Provoost. “For those who do give it a go, it’s worthwhile starting small to ensure the actions the bots take align with your individual risk appetite.”

Where AI Falls Short

Experts concur that generative AI works best as a collaborator or assistant rather than a replacement. While it’s useful for automating repetitive tasks, financial decisions often require expertise, context and a deeper understanding of individual goals, circumstances and markets. “AI can often spit out the most generic and abstract advice, so it’s not necessarily giving users real tried-and-tested recommendations,” says Aleksandra Medina, co-founder of Frich.

Research from MIT Sloan found that while tools like ChatGPT can pass domain-specific financial tests with tailored training, they often fall short without it.

Finance professor Andrew Lo highlights the need for AI to adhere to fiduciary and ethical practices, noting, “Despite their remarkable abilities, [AI] models still grapple with accuracy and reliability, creating concerns about trust and ethics in these models and in AI more generally.”

To add to the uncertainty, notes Lo, there is limited to zero regulation for how these models can and should be deployed. “As LLMs become more integral to the fabric of society, the dangers they pose may end up rivaling the benefits they bring.”

What’s Next?

Generative AI is indubitably transforming personal finance, offering speed, convenience and personalization, but the utility may lie in approaching these tools with considerable critical thinking, experts warn.

“We’re still at the ‘early adoption’ phase for budgeting AI,” says Provoost. “Early adoption comes with risks. Any experimentation with AI as it currently stands need to be done hand-in-hand with the user’s own research and due diligence.”

On the bright side, advances in AI are launching a new technological era in which LLMs may be able to help democratize of finance “by making low-cost, high-quality financial planning services available to everyone, especially those who cannot afford such services today,” notes Lo.

On the downside, though, improperly trained LLMs could be deployed to mislead the public, generating irreparable losses to their savings and threatening the stability of entire financial systems, he adds.