AI for Personal Finance: How Technology and Money Can Work Together

Table of Contents

1. What is AI and How Is It Being Used in Personal Finance Today?

2. How Can AI Help Individuals Manage Their Budgets More Effectively

3. How Does AI Improve Financial Decision-Making for Individuals?
4. How Can AI Assist with Investment Strategies and Portfolio Management?
5. What Are Some Popular AI Tools or Apps for Personal Finance Management?

a. Budgeting
b. Credit Score Management
c. Investing

4. What Are the Potential Risks of Using AI in Personal Finance?
5. What Role Does AI Play in Detecting and Preventing Financial Fraud?

The intersection between technology and money has become increasingly significant. Technology, including artificial intelligence, is more accessible than ever and consumers are using it for financial management.

Using AI for personal finance allows individuals and families to manage finance tasks such as budgeting, tracking spending, and saving for their financial goals, with ease. If you’re interested in getting financial advice or assistance from AI, this post will help you understand how an AI driven tool can help you and which tools to turn to for financial insights.

What is AI and How Is It Being Used in Personal Finance Today?

Artificial intelligence, AI for short, is technology that can simulate human behaviors, including: 

• Learning
• Decision-making
• Comprehension
• Problem solving

It’s powered by machine learning and deep learning, which allow it to analyze content, both written and visual, and synthesize what it learns quickly. Most of the news about AI technology has focused on generative AI tools such as ChatGPT. 

The use of AI in personal finance is significant and growing. An Experian poll found that 67% of Gen Z respondents and 62% of Millennials use AI for personal finance management. Those who use AI praise its ability to simplify complex tasks such as creating a budget or planning an investment strategy.

How Can AI Help Individuals Manage Their Budgets More Effectively?

Creating and sticking to a personal budget is one of the most effective ways to get your finances in order. Budgeting is the key to saving toward your financial goals, having money to invest, and building or improving your credit.

We think everyone should have a budget, but creating one – especially if you’ve never done it before – can be time-consuming and even overwhelming.

Using AI can simplify the process. You provide an AI tool with the relevant financial data, including your income, expenses, and savings goals, and it can create a budget quickly. From there, it can revise your budget if you give it additional finance information. 

Once you have a budget in place, AI tools can further assist you by analyzing your spending patterns and providing financial insights.

How Does AI Improve Financial Decision-Making for Individuals?

Managing your finances isn’t easy and not everyone has the specific financial literacy and experience to make the right decisions. And let’s face it, you may not have time to do a deep dive and learn the finer points of retirement planning, investing, or saving. 

Where a generative AI tool can help is in gathering information and synthesizing it quickly to provide you with a summary or analysis of relevant data. Instead of spending your time searching for answers and then reading and trying to wrap your head around them, you can get information quickly and use it to enable smart decision-making.

In case you’re wondering which financial decisions AI can assist you with, some examples include how much money to save for retirement, whether it’s time to buy a new car, and which budgeting method will work best for you.

How Can AI Assist with Investment Strategies and Portfolio Management?

Investing is something that you should be doing, since it’s a necessary component of retirement planning. If you haven’t invested before, or you have but you still feel like you’re not an expert, artificial intelligence can boost your financial management in several ways.

Let’s start with investment strategies. People implement different strategies to achieve their investment and retirement goals. For example, you might decide that a buy-and-hold strategy is best for you, where you ride out market volatility. Or you might prefer a strategy that enables you to take a bit more risk, such as growth investing.

Here’s a hypothetical to illustrate the point. You decide that you want to beef up your portfolio by investing in blockchain technology. AI can compile a list of relevant companies, provide information about their performance in the market, and make investment advice about the best assets to include in your portfolio.

There are many AI tools available to help you with investment decisions. You could use generative AI to help you with portfolio rebalancing. You could also use a robo-advisor to help you make decisions about what to buy and when to sell.

What Are Some Popular AI Tools or Apps for Personal Finance Management?

AI-powered apps and tools are everywhere. Here are some of the best AI tools to provide you with personalized financial advice and help you do things like increase your personal capital or stop overspending. Many AI powered apps offer personalized recommendations to help meet your financial goals.

Budgeting

As we’ve noted, AI-powered budgeting tools can be quite useful. Here are a few that you may want to try if you’re searching for a budgeting app to help you with things like expense tracking or automated savings.

• You Need a Budget (YNAB)
• Rocket Money
• PocketGuard
• Wally

Budgeting is one of the best ways to achieve your financial goals, like bolstering your savings account.

Credit Score Management

Improving your credit score may be an important financial goal. Here are two AI-powered apps we like for this purpose.

• Credit Karma
• Credit Sesame

These financial services can help you understand this aspect of your financial management, and create a plan to improve it over time.

Investing

Maybe you're looking for a financial advisor. Robo-advisors may be stand-alone apps or come as a feature if you use a digital investment tool and are looking for personalized insights. Here are some stand-alones to try.

• Betterment
• Ellevest
• Wealthfront
• SoFi

You may also be interested to know that some big brokerages such as Vanguard and Schwab offer robo-advisors to help diversify your investment portfolio.

What Are the Potential Risks of Using AI in Personal Finance?

We’d be remiss if we didn’t talk about some of the potential risks and downsides of using AI in personal finance.

Privacy

Privacy is always a concern when engaging in online activity, and AI is no exception. It’s a common human failing to leap first and ask questions later, and that’s certainly what’s happened with the adoption of AI.

The truth is there’s no way to know for sure what will happen with generative AI or with the information you give it, so keep that in mind when using AI for financial planning. One recent example, which was investigated by the FTC, was Amazon’s retention of recordings of Alexa users’ voices, including children’s voices, which could potentially be used to defraud consumers.

Misinformation

AI is always learning and in many ways, that’s a beneficial thing. That said, we all know that there’s a lot of misinformation on the web. If we’re seeing bad information, so are the AI tools we use for personal finance.

Misinformation may be malicious, but it may also just be out of date or written by someone who doesn’t really understand the topic in question. Misinformation could lead you to make uninformed or disadvantageous decisions about what to do with your money. The solution? Always fact-check the recommendations you get from an AI System before acting on them.

Oversimplification

One crucial thing to keep in mind about AI tools is that they have a tendency to oversimplify. There’s a good reason for it. They’re typically limited to publicly available information, and in some cases, such data may lack nuance and details.

At this time, we wouldn’t recommend relying solely on AI for research, but using it as a supplement to your own reading and research.

What Role Does AI Play in Detecting and Preventing Financial Fraud?

While there are concerns about AI tools being used by scammers and fraudsters, there’s also reason to celebrate the ability of AI to detect and even prevent financial fraud.

One of AI’s strengths is its ability to detect patterns as well as deviations from them. For example, many digital brokerages use AI to analyze users’ behavior and identify unusual activity that may be a sign of fraud in your financial accounts. 

Credit unions and banks employ AI to flag suspicious transactions. If you use a banking app, you’ve probably received a notification asking you to confirm out-of-character spending such as an overseas transaction or a large credit card purchase.

These examples illustrate just how helpful AI systems can be in protecting you and your bank account. 

Manage Your Finances with Confidence

Managing your personal finances can be easier and less stressful with the right personal finance app. Many financial institutions, including Addition Financial, are using AI powered tools to improve services. One example is our partnership with the AI powered app Zest.ai for loan underwriting.

We hope this post has helped you understand how AI technology can streamline money management and help you pursue (and reach) your financial future.  For more resources on how to manage your money, check out our Financial Education Center!