Investors Cautioned on AI Use for Personal Finance Management

Artificial intelligence (AI) is increasingly influencing personal finance, but experts caution that its effectiveness depends significantly on the user’s expertise. While AI can provide quick answers to financial inquiries, many users lack the knowledge to formulate the right questions or use the appropriate terminology. According to Nick Holeman, director of financial planning at Betterment, this technology is best suited for experienced investors who understand their needs.

Users must approach AI tools with caution. Holeman notes that even advanced chatbots can deliver inconsistent or incorrect information. For instance, an AI model may use different inflation rates in various calculations, leading to potential discrepancies in financial forecasts. He emphasizes that while AI shows promise in transforming financial services, it is not yet capable of independently managing one’s financial affairs. “You should be careful,” he advises, particularly regarding crucial financial decisions.

In terms of public usage, a survey conducted by the Pew Research Center in June 2023 revealed that approximately 34% of U.S. adults have utilized AI tools at least once, a notable increase since the summer of 2023. Additionally, a separate study by Experian indicated that nearly half of the respondents from a sample of 2,011 are either using or considering using generative AI to assist with financial management. Among younger demographics, the interest is even more pronounced, with 67% of Generation Z and 62% of millennials reporting current use.

Despite its shortcomings, AI can be beneficial for explaining investment terminology and basic strategies. Users can obtain information on popular S&P 500 exchange-traded funds (ETFs) or leading technology stocks. However, the importance of verifying this information with reliable sources cannot be overstated, as AI outputs can still be inaccurate. A recent study from the Tow Center for Digital Journalism found that generative search tools, including ChatGPT, provided incorrect answers for over 60% of queries tested.

The challenges of using AI in financial contexts require users to critically assess the information provided. Vasant Dhar, a professor of data science at NYU Stern School of Business, highlights that successful utilization of these tools necessitates a user’s ability to evaluate AI-generated insights, especially if they plan to act on the recommendations.

Some users, like John Ninia, a 25-year-old financial analyst originally from Long Island, New York, have effectively integrated AI into their investment strategies. Ninia has been actively investing since he was 16 and currently holds a position as a director at Mobius Investments. He describes how AI tools like ChatGPT can simplify complex financial concepts and provide rapid access to key metrics.

Ninia recalls a specific instance during heightened tensions between former President Donald Trump and Federal Reserve Chair Jerome Powell, where he used the AI tool to research the largest U.S. home builders. This analysis influenced his investment decisions, leading him to choose stocks with favorable financial measures.

As AI technology evolves, companies are exploring ways to enhance its application in personal finance. For instance, investing app Public.com has developed a feature called Alpha, which offers AI-driven summaries and insights on assets. Stephen Sikes, the company’s chief operating officer, states that the tool is designed to synthesize essential information that retail investors seek about companies.

While AI holds the potential to assist everyday investors in making informed decisions, experts recommend that its current use should primarily focus on educational aspects and generating initial ideas. Ultimately, users should supplement AI insights with research from credible sources or professional financial advice. As the landscape of personal finance continues to evolve, the integration of AI is likely to play a significant role in shaping future investment strategies.