AI’s Role In Personal Finances

More than a few of us have a “friend in the industry” that we corner at cocktail parties asking for advice about our personal finances. For some, this is borne out of a fear of consulting a financial professional while others are too overwhelmed by the complexity to even know where to start. Generative AI to the rescue.

The Allure of Generative AI

Younger investors wading into the tricky waters of finance and investing are increasingly finding generative AI to be a useful tool in clarifying the complex. In lieu of the more formal practice of sitting at a desk across from a professional advisor, they can interact, judgment free, with a platform that can quickly analyze large amounts of data, create budgets, help track spending, and make personalized suggestions. If you don’t understand compound interest – ChatGPT is ok with that. Of course, this is a question any advisor would be happy to answer, we’re simply too embarrassed to ask.

Understanding The Risks

When it comes to accuracy, generative AI is at the mercy of the internet, and there’s plenty of misinformation out there to be had. AI can be quite helpful with the basic principles, but for the heavy lifting, it’s advised you consult a professional. Trusting a major financial decision to a tool that lacks human oversight, can’t guarantee accuracy, and isn’t held to ethical or fiduciary standards could be a massive risk. Then there’s the issue of security. In order for generative AI to be useful, you’ll need to provide a lot of sensitive information. If you have privacy concerns, this is definitely something to consider. 

Creating Good Habits

While there are clearly several downsides to relying solely on generative AI for financial advice, there is one major upside. When you inject fun into the process of budgeting, saving, and investing, and make it interactive, people feel more engaged. This helps to foster trust and develop good habits that will have a lasting impact on your finances. It also leads to increased financial literacy which can put you more at ease when you decide it’s time to meet with a financial advisor.

Feds Are Unique

Generative AI can put you on the right path toward financial success, but most of its recommendations will be driven by generic advice that doesn’t take into account your unique federal benefits. Understanding the “three-legged stool” of FERS, TSP, and Social Security, as well as the FEHB coverage you carry into retirement, is integral to creating a tailored plan for your finances. For more information, reach out to an FRC® trained advisor.