The benefits and dangers of AI in personal finance

They say that money is the root of all evil, but can computers become evil, too? How will the age of artificial intelligence change how we handle our personal finances?

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Artificial intelligence (AI) is starting to become commonplace throughout our lives. It powers the search engines we use to find new information, automated machines (including emerging autonomous vehicles), and even medical diagnoses. But one of the most promising areas for AI emergence has been in the realm of personal finance; through the use of advanced data processing, personalization, and intelligent decision making, AI-based platforms purport to help users manage and build their wealth.

How AI can help in personal finance

These are just a few of the ways advanced AI has been helping consumers:

  • Saving and budgeting apps. First, there’s the emergence of AI-based saving and budgeting apps, which can gather data from users (such as how much money they make and what they’re currently spending on wants and needs), and make recommendations for how to allocate their money differently. This is essential for people trying to save up for a down payment on a home, a business, or another expense.
  • Personal assistants. Some companies have gone a step further, offering AI-driven personal assistants that make it easier to accomplish financial tasks, from paying bills to managing online accounts. These increase the convenience factor, and oftentimes make more consistent recommendations than a human being could.
  • Robo-advisors. Other companies have ventured into the realm of “robo-advisory” or robo-trading, which makes use of advanced AI algorithms to make intelligent stock picks and rebalance your portfolio over time.

But are these platforms really helping consumers financially? Or are there hidden risks we aren’t considering?

The benefits of AI systems

There are some clear benefits to relying on AI:

  • Objective decision making. Humans are subject to a number of biases and emotions, which affect our decision making. In general, the best financial decisions are the most objective ones, since the end goal is a numerical, mathematically defined one. AI algorithms aren’t subject to human emotions, and won’t fall victim to things like sunk cost fallacy, which can keep you locked in a failing habit just because you’re used to it. This makes them more apt for long-term, objective decision making.
  • Super-human data processing. Machines can also gather, interpret, and make sense of far more data at once than a human can. It’s true that AI has yet to reach a “general” intelligence on par with the human brain, but when it comes to making numerical calculations and incorporating thousands of variables, AI systems simply can’t be beat. This is especially important when studying complex economies and companies within them.
  • Exponential potential improvements. Finally, AI systems have the potential to improve exponentially, and possibly without limit. As a human, your own knowledge and experience will grow slowly and linearly, but the AI systems you use to make decisions will likely grow at a faster rate.

The dangers of AI when it comes to finance

There are also some clear downsides to relying on AI in the personal finance space:

  • Consumer overconfidence. If you start relying too heavily on other platforms and programs to make decisions for you, you could become overconfident in flawed systems. You might lean on these platforms too heavily, neglecting your own instincts and experiences in favor of something with a proven track record. In many cases, this will work out fine; in others, you or the program may overlook key variables that could lead to your downfall. The more you invest in AI, the greater the risk this will pose.
  • Corporate control. You aren’t the one building these AI platforms, and since most of these systems are proprietary and confidential, there’s no way to know what’s really going on in these artificial minds. Corporations and developers are the ones in charge of these pieces of software, and they’re the ones controlling their development, which could lead to monopolistic problems down the road.
  • Market manipulation. AI platforms that make lots of micro-decisions and base their actions off the actions of others can have dramatic effects on financial markets (as evidenced by the Flash Crash of 2010, and many other “flash crash” instances). Fortunately, developers are making corrections to accommodate for this possibility, but it remains an important large-scale risk to consider.

It’s true there are both upsides and downsides to using AI for personal finance—but the same can be said of any technology. Modern AI is currently the best system we have for decision making, problem solving, and analyzing data, and it’s only going to get better over time (so long as we allow it to do so). That doesn’t mean you should put your full faith in finance AI algorithms, but that doesn’t mean you should shy away from them either. Instead, as consumers, we need to be prudently aware of the complexities of the technology, and use it the best we can as it keeps improving.

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