The rapid pace of technological innovation has affected many aspects of our lives, including personal finance, investing and financial management. In particular, the emergence of automation and AI (artificial intelligence) is providing new tools and methodologies for people to manage their money, including investment decisions and planning for the future. There are both benefits and potential negative consequences to use of these technologies when it comes to personal finance.
💡 Fun Facts…
| 1) In 2032, the AI market value is expected to be worth $2,500,000,000,000 |
| 2) OpenAI (the maker of ChatGPT) is valued at $29 Billion |
| 3) The term “artificial intelligence” was first used in the 1950s during a study |
Automation has had a big impact on managing one’s personal finances. Examples include automated investment and savings contributions, bill payments and fund transfers. Automating these transactions helps minimize human errors, saves time and helps with financial discipline, such as with automatic savings contributions. Similarly, AI tools give people power to manage their finances in new ways that were not previously available. Many of the personal finance apps that are popular give their users real-time insights and recommendations about their budget and spending. By analyzing patterns, the software can provide personalized recommendations to improve your financial situation, including finding opportunities to save. Many banks and financial institutions have introduced chatbots and virtual assistants that can automatically answer financial questions, make investment advice and even improve a person’s financial literacy, all without human intervention.
Through technology, we are now able to make decisions based on data analysis, and not just human judgment. Learning algorithms are able to look at a very large amount of financial information such as historical patterns and market trends in order to identify potential investment opportunities and attempt to predict where markets are headed. These tools can look at and analyze much more data than humans are capable of. Many hedge funds use automated algorithms to make real time, second by second investment decisions and execute these decisions instantly. An emerging tool is Robo-advisors, which are the automated equivalent of a stock broker. Using Artificial Intelligence, these robo-advisors can make recommendations for investments based on someone’s financial goals and risk profile (eg. the amount of risk they are willing to tolerate). These tools can help to diversify a portfolio, automatically rebalance and find investment opportunities. All these tools should be used with caution and should be carefully monitored, and they can never fully replace the human judgment factor. Retirement planning tools can provide recommendations and strategies for long-term planning.
Another benefit of these automated tools is that they help reduce fraud and improve security measures of bank accounts and credit cards. Algorithms are used to analyze a person’s spending habits and if there is an attempted transaction that seems unusual, they can send alerts in real time to confirm its legitimacy, Biometric logins, such as with fingerprints or facial recognition help secure electronic devices and access to financial accounts. Finally, automated extra layers of security, such as two-factor authentication help minimize the potential for fraudulent account access.
With AI and automation, underserved communities can now have access to financial services and capabilities that were previously challenging for them. Automated algorithms are able to look at alternative data sources and determine creditworthiness more precisely, which open up lending opportunities for previously unqualified applicants. In addition, mobile banking and digital wallets have given access to people living in remote areas around the world. Where previously, one needed to be physically located near an actual bank branch, people can now conduct banking services and investments from anywhere with access to the internet.
Potential negative consequences and ethical considerations must be addressed with the advent of computer based tools. As automation takes over routine tasks, there will be loss of jobs in the financial sector. Employees must be trained and given new skills, so as not to be displaced. A huge issue has been data security and privacy issues. Vast amounts of personal data are stored and used by many large entities, and privacy regulations must be enforced to make sure these institutions are handling sensitive information appropriately. Hacking and data breaches are not uncommon, causing potential data theft issues for millions of people at a time.
OPINION
The robots are here! Don’t be scared of artificial intelligence or automated trading systems. When used properly, these tools can enhance our investments and help us make better decisions. When using automated tools, you still need to monitor results and check to make sure the investment choices align with your goals and plans. Human and automated decision making combined can make more powerful and smarter decisions.
