Last Updated on December 26, 2023 by Sagar Kumar Sahu
A worrying fact was brought to light in a recent report as more than 60% of Americans are aware that they might do better when it comes to financial planning but only 35% actually seek advice from a financial professional.
Now, do you know why so many people refuse to receive professional financial advice? Well, the obvious reason is cost. People eventually lose money as a result of neglecting to make financial plans for the future. But, the time has changed now because new AI technology is emerging and solving the problem.
Artificial intelligence (AI) is everywhere these days. Also, it can make things simpler and that’s why its application in personal finance is starting to become clear. It can instruct people on cost-effective money management, investment strategies, and future planning.
The primary issue is that not everyone is aware of all the breakthroughs made by AI in the finance industry. So, if you are thrilled about how AI is changing personal finance, check out our blog to learn more about how AI is changing the industry.
The Rise of AI in Personal Finance
The development of AI in finance has been a long and exciting journey. It has fundamentally changed the way how the financial systems function. The debates around artificial intelligence in banking have started their origins almost a century ago.
According to a New York Times article in 1928, before the Great Depression of the 1930s, there were rumors that jobs were lost due to automation. Process automation was considered a promising post-World War II solution for the banking industry in the 1950s.
The prospect of streamlining tasks for accountants and bankers through automation raised excitement but also raised fears of job losses.
Even before we had powerful computers, people were interested in using AI in banking. Scientists began using a unique method called “Bayesian statistics” in the 1960s to examine financial records and forecast stock market movements.
But companies didn’t realize that AI could transform finance until the 1980s. These early AI systems, known as “expert systems”, gained popularity and were adopted by many large corporations. Now, in 2023, AI can do things that were once just ideas.
Important Uses of AI for Personal Finance
AI has a lot to offer right now, let’s focus on these six best AI applications that are changing personal finance
Expense tracking and Budgeting Automation
AI-driven solutions have revolutionized the field of expense tracking. They offer real-time insights into spending trends and simplify reporting processes. These systems can accurately extract data from invoices and receipts by using technologies like Optical Character Recognition (OCR).
This eliminates human error and significantly reduces the time and effort required to track expenses. AI automation can generate thorough expense reports in addition to simplifying expense tracking. It automatically creates the following things:
- Reports generated from gathered data
- Verifies costs
- Guarantees adherence
- Finds anomalies.
This saves time and improves accuracy. Micro businesses can make huge profits from AI-powered expense automation. With the help of these tools, you can see the complete picture of your financial situation and make proper decisions, efficient budgeting and cost-saving opportunities.
Personalized Financial Advice and Recommendations
Have you ever hesitated from taking financial advice because of the cost of advice? You should consider a solution that provides the best guidance without increasing expenses.
This is now possible because of financial tools are driven by AI. These incredible technologies can read a person’s personal financial information, suggest investments, and offer guidance based on that person’s requirements and objectives.
The ability of AI to analyze vast amounts of data, recognize certain patterns and trends that are normally overlooked by human observation is incomparable. These insights provide the basis for more accurate investment decisions using data that may otherwise remain unknown.
AI is not only effective in providing recommendations but it is also good at personalizing. By carefully analyzing each customer’s financial profile, the AI ensures that the advice is exactly tailored to their unique goals and financial situation.
Fraud Prevention and Identification
AI is fighting against fraud by analyzing massive datasets through machine learning. Its primary responsibility is to continually adapt to new fraud strategies by regularly monitoring trends in data that may point to fraudulent activity.
As we have already discussed, AI’s ability to offer real-time transaction monitoring is one of the key factors that make it so important for fraud detection.
This timely monitoring helps organizations quickly identify and counter potential fraudulent attempts. Artificial intelligence systems are particularly powerful in reducing errors.
Therefore, this reduces the possibility of blocking authorized users. It is also efficient in detecting complex fraud scenarios involving multiple accounts, devices, locations and transaction channels
Portfolio Optimization and Investment Management
Automation powered by machine learning rapidly finds investment opportunities that allow us to make good decisions. AI also dynamically adjusts asset allocation based on real-time data that includes:
- Prices of stocks
- Business profits
- financial metrics
It also has the ability to dynamically rebalance portfolios in response to changing investor preferences and market conditions. Portfolio customization can make retirement planning easier for individuals seeking investment management for an individual retirement account.
Chatbots and Conversational Finance
Ignoring extensive customer interactions and services across several departments is pretty difficult. But now, Artificial intelligence has made it possible for finance websites to operate around the clock. These can provide personalized financial advice, address frequent asked queries, and guide the users in the direction of nearby branches and ATMs.
AI-driven chatbots analyze customer data to give recommendations and advice. These chatbots can assist with processes like fund transfers, bill payments, and even the discovery of potential sales opportunities.
Hazard Assessment
The risks are constant challenges to financial success and stability and might vary from market volatility to regulatory compliance. AI provides a good solution to the banking risk problem, particularly given its machine learning capabilities.
The ability to make predictions by understanding the complex relationships between multiple scenario variables and risk factors leads to a large increase in forecast accuracy, especially in times of market volatility. AI can understand these complex non-linear interactions that helps in higher predictive accuracy.
Potential Demerits of AI for Individual Finance
Although the use of AI in personal finance has mny advantages, there are also drawbacks that need to be considered as well. AI in personal finance has dangers just like any other technology.
Data security and privacy issues: AI systems used in finance require access to large amounts of private financial information. This has increased concerns about data privacy and the possibility of a data breach. Artificial intelligence systems that handle and store sensitive financial data need to be protected from increasingly complex cyber attacks.
Automation and Algorithm Dependence: The Over-reliance on AI can result in insufficient human oversight in financial decision-making. Even if AI algorithms are strong, they cannot always take action in unexpected situations.
Possibility of Accuracy and Bias: AI-generated suggestions and conclusions are distorted and this can result in inappropriate or inadequate financial advice (if the underlying data is biased or flawed). It is always difficult to keep an AI system fair and accurate.
Insufficient Clarity: Algorithms can be complicated when they involve machine learning. The ‘black box’ aspect of financial advice and judgements provides a challenge for users in understanding the process and this results in a dearth of trust and acceptance.
Job Losses in the Financial Industry: Because AI can automate processes, there will be less need for some financial roles (mainly with repetitive work). This can lead to a loss of jobs and a requirement for retraining in the financial industry.
Regulatory Obstacles: Regulations are challenged by the quick development of AI in finance. It is a difficult and continuous effort to make sure AI-driven financial services obey the current regulations.
Risks of Market Manipulation: Rapid analysis and action on financial data by AI increases the possibility of market manipulation. It is important to maintaining market integrity to ensure that AI is used ethically in trading and investment operations.
In The End
After looking at these AI personal finance services, it’s evident that conserving money and ensuring a bright future aren’t as difficult as people once believed. Even though people’s financial decisions often result in big losses, AI can greatly reduced their difficulty.
You can gain momentum in your financial quest with AI. With just a few clicks, these artificial intelligence apps can esily improve your life by simplifying money management.