Artificial intelligence (AI) is seemingly everywhere, and increasingly, seemingly everywhere includes your financial decision-making process.
The good news? There’s a place for that.
The bad news? Some people are using AI outside of that place.
Today, I’m going to take advantage of the fact that robots haven’t yet become sentient to put AI in its place … at least as it pertains to using artificial intelligence tools to manage your finances.
The Robots Have Come for Your Budget
Artificial intelligence programs have flooded the consumer realm over the past couple of years. At this point, it’s more than likely you’ve come across at least one of these apps—Siri, Cortana, Copilot, Gemini, ChatGPT, and so on.
Most of these, at the consumer level, exist to spit out writing so you don’t have to put undue stress on your gray matter. You tell your AI assistant to make your email a little more polite, and poof!—you’ve turned “Remember that email you didn’t read because you’re lazy and illiterate?” to “Per my previous email …”
But AI is doing much more than sanitizing your workplace communications. Among other things, it’s getting a foothold in the personal finance industry.
Research from Experian reveals that nearly half of consumers, most of them 40 or under, are either using or considering using AI-powered tools to manage their finances. And 96% of current users report “positive” experiences with these tools.
Why Shouldn’t You Rely on AI for Financial Advice?
Unfortunately, what tastes great is often sub-optimal for our health.
It’s easy to see the appeal of asking AI platforms for advice. You just tap a few sentences and it derives its responses from a seemingly endless amount of sources. And it’s fast! You can get the advice you crave within moments.
But it also is saddled with enormous risks, including the production of downright inaccurate (while boldly proclaimed) information, and even privacy concerns when apps require a good deal of personal information.
None of this is to say that you should completely avoid AI (though it’s worth at least half a thought). However, if you’re thinking about putting all of your day-to-day financial decisions in AI’s hands, you might want to rethink that plan.
I’d like to explain how this technology can steer consumers astray … as well as a few use cases for “AI as an advisor” that actually do stand up to scrutiny. But I won’t be doing so alone. Answering a few questions for us today is Grant Gallagher, Head of Wellbeing at New Jersey-based Affinity Federal Credit Union.
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1. AI Can Be Wrong
If you ask an AI chatbot a financial question, there’s an ever-present risk of it giving you inaccurate results or advice. Indeed, they often just make things up, charitably dubbed “hallucinations.”
And those hallucinations are getting worse.
“[OpenAI] found that o3—its most powerful system—hallucinated 33 percent of the time when running its PersonQA benchmark test, which involves answering questions about public figures. That is more than twice the hallucination rate of OpenAI’s previous reasoning system, called o1,” The New York Times reports. “The new o4-mini hallucinated at an even higher rate: 48 percent. When running another test called SimpleQA, which asks more general questions, the hallucination rates for o3 and o4-mini were 51 percent and 79 percent. The previous system, o1, hallucinated 44 percent of the time.”
Says Gallagher:
“The source of the information is critical to the quality of the output. If you know you’re giving an AI tool all of the information it will use, and it’s basing its responses purely off of your information, it’s probably a reliable response. But so many of these tools are ‘black boxes.’ You don’t know if they’re pulling from other sources, and you don’t know what those sources are.
“If you knew that data was coming only from financial institutions’ websites or Certified Financial Planners®, for instance, that’s one thing. But it’s going to scrape this information from budgeting forums where people aren’t necessarily providing bad advice intentionally, they’re just your average consumer that’s not as knowledgeable as a financial expert.
“It could literally be pulling info from a conspiracy theory website, or pulling completely unverified information, and somehow finding a way to relate this info to your personal budget.”
You don’t want to be an AI test dummy, and it’s not even clear when that’s the case. In other words: Unless you know for sure where an AI model is making its assumptions from, “you shouldn’t be making any serious financial decisions based on what an AI recommends,” Gallagher says.
2. AI Has Customization Limitations
A chatbot knows little more than what you tell it. Sure, you could offer more information. Rather than just entering the prompt “Create a retirement investment plan,” you might specify, “Create a retirement investment plan for a 50-year-old with a moderate risk tolerance.”
But most people don’t know all the relevant information they’d need to type in to get anything resembling a personalized program. Even then, the generic advice AI ultimately will spit out might not work for your unique financial situation.
“If you’re a layman and you don’t know that AI needs to know your long-term ambitions, that you have kids you need to put through college in 15 years, and all sorts of other major milestones along the way, and that you don’t have an emergency fund, the AI program is just going to say, ‘Hey, here’s a budget,’ and that’s it,” Gallagher says. “It won’t ask you about those important things that you should be factoring in.”
AI also generally isn’t regionalized. So if you’re in a high-cost-of-living area, it could be basing its decisions off data that’s completely different—off national data or data from lower-cost areas.
3. AI Lacks Emotion
Emotional financial decisions are often bad ones. People who panic-sell into a bear market or spontaneously make big purchases because they get too excited … they’re not making the best choices.
So from that perspective, one might view AI’s lack of emotions as a plus for decision-making.
And yet …
“AI is typically really focused on financially rational decision making,” Gallagher says. “But we’re inherently emotional beings who might not be able to execute on a fully rational plan. And that’s one of the other benefits that AI still struggles to deliver on: understanding that humans need cheat days, or small wins, or that we sometimes fall off the horse and need to get motivation to get back on and keep going.”
Related: Do These 7 Bear Market Tips Hold Up to Scrutiny?
4. AI Can Raise Privacy Issues
Let’s face it: A lot of your basic financial information is likely already available to more people than you’d like.
But there are different levels of financial data.
Let’s say you ask a chatbot the likelihood of being approved for a loan, and it asked you for your credit score. You might input that number with zero concern about sharing that information.
But at some point, there’s probably a deeper level of financial information you might get nervous about sharing with a random bot. For example, you might want help budgeting and turn to a random, free tool you find online … only for it to ask to connect with your credit card account so it can categorize your purchases.
Maybe you don’t want to share that you’ve been purchasing pregnancy tests every month or how much you paid at your last doctor’s appointment. If you provide too detailed information to an AI product, it might create a profile of you that could manipulate you into spending more money. Or a data breach (or even fine print in the terms of service) could mean other companies end up gaining your financial data.
If you don’t know who your chatbot is sharing information with, do you really want to give it all the keys to your financial life?
Related: Are You Retirement-Ready? 10 Questions to Ask Yourself
5. AI Might Pose Conflicts of Interest
Imagine if a fitness study were published and the results showed that stationary cycling was by far the best form of exercise. If you found out the study was funded by Peloton, would that make you less trusting of the results? Many people would consider it biased.
Similarly, while an AI platform isn’t purposely trying to push an agenda, it doesn’t always disclose its sources. For instance, ChatGPT might recommend you invest in companies like Microsoft and not mention that Microsoft has invested more than $13 billion in ChatGPT’s parent company, OpenAI.
That doesn’t mean Microsoft isn’t a good investment—a human financial advisor might recommend it as well—but the lack of transparency is worrisome.
Related: Artificial Intelligence Statistics, Trends + Technologies
When Is AI for Financial Advice Fine?
Despite sounding like a Negative Nellie, I’m not suggesting there is no place for AI when it comes to financial advice.
It can be fine, for instance, if you’re just looking for broad guidance.
It can be fine if you’re looking for generic advice.
“If you’re just looking for basic, generalized information, AI is fine for that,” Gallagher says. “It’s probably going to have enough data points and enough information that it has scraped from the web and other sources that it will probably have pretty reliable information.”
But he adds that there’s still the chance of AI hallucinations even for generic info.
“There might be somebody out there on a Reddit thread saying, ‘You should actually sell all of your assets and go live on an island somewhere.’ That’s completely within the realm of possibility,” he says. “You’re best off looking for very specific, clear-cut examples where AI probably won’t give you any information that will potentially hurt you by acting on it.”
Related: How Much Money Do You Need to Work With a Financial Advisor?
Where Else Can I Get Financial Advice?
People are increasingly getting financial advice from social media. According to a 2024 Credit Karma survey, for instance, 43% of Americans actively seek financial information or advice online or through social media platforms. For Gen Z, that number jumps to 77%.
Results of that choice are … mixed.
Sixty-seven percent of Gen Zers and 60% of Millennials said they’ve improved their financial situations from the advice they received online or from social media. However, 39% of Gen Zers and 33% of Millennials said they will never take financial advice from social media or online again.
Some people are lucky enough to have financially savvy parents who are willing to impart their wisdom on to their children. Others attend schools that offer comprehensive personal finance classes. If these options are available to you—use them!
But perhaps most obviously, you can seek out financial advice from a financial advisor, which as the name suggests, is a person who specializes in providing financial advice. There are numerous types of financial advisors that differ in levels of expertise and focus areas, such as taxes, investing, retirement planning, and more. These professionals typically have undergone rigorous studying and training, and earned various degrees and certifications, to best serve their clients.
