Ever since AI was introduced, it captured public interest and attention. At this stage, AI tools are already offering solutions for personal finance, like improving financial literacy or helping create a household budget. There are even dedicated tools and mobile apps that help with general personal finance management, spend tracking, and financial planning. With a variety of options readily accessible, you can leverage AI to help with your own finances!
Applications of AI in personal finance
Financial literacy
Financial literacy is a key step towards having stable finances and knowing how to manage your money well. According to a recent survey, 45% of respondents were using AI to learn about personal finance topics. Turning to AI for basic financial information is a great step if you haven’t had an opportunity to learn this before. Learning the basics can help people feel more empowered to understand and explore more options that would serve them well financially. By making personal finance advice more accessible, AI can play an important role in financial literacy.
Budgeting
Nowadays, many budgeting tools offer some form of AI integrated into their offerings. These tools use AI to understand the customer’s habits, cash flow, regular transactions, and the like. They can then use this information to let you know about your progress towards your savings goals or financial milestones, your spending patterns and changes, if any, possible cash flow issues, and more! You can use them to create a budget, and tweak it to your needs.
Build savings
When your budgeting tools – and even many digital banking apps nowadays – have insight into your spending patterns, they can also be used to provide opportunities for you to save. They can recommend what kind of savings you can afford to put aside, or you could specify a goal amount to work towards. Here too, the kind of value or insights you get will greatly depend on the capabilities of the AI you are using, and what datasets it has been trained on.
Understanding and analyzing data
AI tools have made research and analysis much simpler. What may otherwise require hours of research and parsing data, can now be simplified with a simple AI query. Saving this kind of time and energy removes barriers to learning, especially for a topic like personal finance. It can be overwhelming, more so if you have not had prior exposure. Using AI to do this can help make things like creating a household budget or financial planning easier and more accessible.
Canadians using AI for household budgeting
According to a recent survey, 44% of Canadians surveyed believe that AI tools can help with real financial progress. Indeed, there are many ways that AI is helping people learn about many new things, including personal finance.
Create and stick to a household budget
According to the same survey, 27% of respondents used AI to create/update their household budgets, and the same percentage also used it to find new investment strategies. AI can certainly simplify the process and provide a good starting point to manage your budget. You can also use AI to tweak your budget according to goals or spending patterns.
Learning your own financial habits
Since AI works on large amounts of data, your own financial habits will be a key part of it. With that kind of access, AI will be able to identify patterns, high-spend categories, or your financial goal progress and estimated time to accomplish it. This information can inform your spending decisions and allow you to course correct promptly if you see you’re going off track.
Research and data analysis
Thirty-seven percent of survey respondents reported using AI for data analysis. AI can certainly save a lot of time usually spent researching and going through multiple data sources, papers, and information on your own. AI can quickly go through the data and parse it into relevant information, allowing you to make informed decisions sooner.
Financial planning
Since AI is already good at parsing information and providing insights into data, it can be a good source of financial planning information. You can learn about personal finance topics and investment strategies, and even ask follow-up questions. Note that AI does not have access to real-time data, so it cannot provide specific recommendations. However, it could provide a structure or framework as a good starting point on which to build.
Retirement planning
AI can help you set and reach financial milestones by providing insights into your spending patterns and financial habits. This can help you figure out what kind of savings you may need to have for retirement. Having this kind of data will make it easier to calculate, and hence, work towards a specific goal.
Limitations of AI
AI is growing in terms of appeal as well as capabilities, but it is not impartial or unbiased yet and does not seem to be reaching that stage anytime soon as it is such a new technology. At present, some bias seems to be inherent, based on what kind of datasets it was trained on and how. At this stage of AI’s maturity, it may not be viable to fully depend on an AI’s recommendation to make important decisions about your finances.
In the context of budgeting and personal finance insights, AI could have the potential to work with “lookalike modelling”. This is a method to parse large amounts of data and then predict or anticipate what a user might do or benefit from, based on what other people with similar data points that “look like you” may have preferred. However, even this depends on what kind of information and data it has access to. This is a complex and intricate process that can require vast amounts of data and energy that, in most cases, is still in its early stages.
As it stands, AI currently cannot be used as a standalone strategy or source of advice. It can help parse data for you, and maybe provide an analysis, but it cannot recommend decisions for your personal situation yet, nor can it replace expert advice and insights. It simply does not have access to the kind of data it would need to provide that level of specialized insight.
Future potential
As AI technology matures, we may see financial planning advice that is more specifically predictive and tailored to an individual. It may be able to take into account your financial data from various sources and combine it into a more holistic overview. This could help you plan your finances better, and provide personalized advice that is currently out of the scope of AI’s capabilities.
We may see tools that automate your savings based on your spending patterns and financial goals. This would require a vast amount of data and the ability to see these intricate connections. AI doesn’t have this fine-tuned capability at this stage.
At present, it would be better to think of AI as an assistant to help do your research and inform your decisions, than to depend solely on it. In the future, as the technology matures, we may see AI be capable of a lot more.
Tips for using AI for your household budget
Here are some things to keep in mind while using AI, especially because it’s a relatively new technology and has been rapidly adopted.
Don’t give out personal information
This is especially important on public AI models. The level of security can vary between platforms and tools, so it’s better to be safe in your online interactions and err on the side of caution. If you want an analysis of confidential information, like checking and understanding your credit score, don’t use public AI tools to do this. Some things are still better to do manually. For example, if there are credit report errors, you need to personally verify whether the error is actually in the report, or an AI error.
Keep an eye on your cyber safety
If you’ve signed up and created a profile, take steps to ensure your personal information is protected. This is even more important if your tools are linked to your payment apps. Create a strong password, and change it as needed. In the event of a data breach, change the passwords wherever else you use the same email ID or log in details. This will add another layer of protection.
Verify information on your own
While AI is great at research and analysis, it can also make mistakes or “hallucinate”. It is important to verify information on your own. Don’t take AI responses at face value, and do your own due diligence before using this information in your personal or professional life. For example, it is better to double-check the results yourself when you’re monitoring your credit.
Use specialized tools when relevant
With the rapid proliferation of AI, there are many tools targeted to specific niches or industries. If you can, try to find sector-specific AI tools. They will likely have been trained on those kinds of datasets and may provide more detailed or comprehensive resources.
Don’t expect real-time information
Most AI tools do not “pull” or have access to real-time information. So, don’t expect up-to-date information from AI tools, especially if you’re looking for recent developments in a field. AI tools often have an information “cut off” date for the data they are trained on, so their answers are based only on information till that date.
Key takeaways
AI tools can offer solutions for personal finance in many aspects, like creating a household budget or enhancing financial literacy. Thirty-three percent of Canadians surveyed in a recent study mentioned using AI to help manage their finances!
At the current stage of development and maturity, it is not recommended to rely solely on AI’s advice. At present, use it as an assistant who can help you with research and analysis. Use your own judgment for the final call. There are specific AI tools tailored to personal finance and budgeting. AI may already be incorporated into the banking and spend tracking tools you already use.
This data access means that AI can provide insights into your financial habits and patterns, helping support your financial planning, set savings goals or milestones, like a down payment, getting out of debt, or even retirement planning. If you’re currently dealing with debt, you can contact one of our trained credit counsellors for advice. They can help you figure out which debt relief strategy could be the right fit for your specific situation.
