How to use AI to improve your finances

By Stock News On Mar 28, 2024 3 0

Artificial intelligence, or AI, has been making waves recently, especially with the launch of widely accessible AI chatbots like ChatGPT.

In simple terms, AI is when a computer is able to analyze algorithms, learn from them, and perform tasks in real time. And whether or not you realize it, AI is integrated into many areas of your life — including your finances. In fact, there are many ways you can take advantage of this technology to improve your financial life.

How banks use AI in their day-to-day operations

While it may seem like AI is a new phenomenon, banks have relied on AI to improve and expand their products and services for years. Some of the ways AI is integrated in banking include:

Chatbots

Many banks offer around-the-clock customer support through live chat features with automated chatbots. These robots may not be able to provide personalized support, but they can use keywords to direct you to the right place on their website or easily answer frequently asked questions without making you wait on the phone for an extended period.

Fraud detection

Banks and credit unions may use AI to detect unusual transactions and notify you to keep your account from being compromised.

Credit score monitoring

If your bank offers free credit scoring tools, those scores are not generated by a real human. Data from the major credit bureaus is pulled and consolidated to generate your score. You may even be given AI-generated tips and recommendations for how to improve your credit score based on the information in your credit report.

Personalized product recommendations

Your bank may offer you personalized product recommendations, such as savings accounts or credit cards, based on your credit score, banking habits, age, income, and more.

Voice recognition and multi-factor authentication

Voice recognition and multi-factor authentication provide an added layer of security for your bank account, making it more difficult for your account to be compromised if your password falls into the wrong hands. AI voice recognition technologies remember patterns in your speech, voice pitch, and more and store that information as a form of identity verification.

4 ways you can use AI to manage your money

AI isn’t only helpful for major financial institutions. You can use AI to manage your monthly budget money, pay down debt, and make a plan to reach your financial goals. Here are a few ways you can leverage AI tools to simplify and improve your finances.

Automated budgeting

Knowing exactly how much you spend compared to how much money you have coming into your bank account is key to making informed financial decisions. AI-driven budgeting apps such as PocketGuard, You Need a Budget (YNAB), Wally, and Rocket Money can all organize your expenses, analyze your spending habits, and give you a better idea of how to spend and save more efficiently.

Debt repayment plans and strategies

AI chat tools like ChatGPT can create personalized debt repayment plans that take into account your debt balances, income, competing financial obligations, and more. Of course, this does not provide the same level of expertise and nuance that a human financial adviser does, but it can give you a starting point for a financial plan that helps you tackle your goals — especially if you don’t have the resources to hire a financial planner just yet.

Credit score management and improvement

Platforms such as Credit Karma and Credit Sesame use AI to offer personalized recommendations and advice to customers who want to improve their credit scores. If you’re not sure where your credit score stands or what factors impact it, using an AI-powered credit score tool can help give you the insight you need to make a plan to boost your credit score and maintain good credit.

Investment strategies and planning

For hands-off investors, AI-powered robo-advisers such as Betterment, Wealthfront, and Ellevest automate your portfolio management. A robo-adviser crafts a portfolio for you based on your financial goals, risk tolerance, timeline, and more — usually at a lower cost than a human financial adviser.

The drawbacks of AI in banking

AI has its limitations. For one, AI systems are only as good as the data they’re trained on and the algorithms they use. Plus, they may not accurately predict market movements or consider the most current events (like, say, a recent interest rate hike by the Fed or student loan cancellation).

Further, while AI can handle generalized scenarios well, it might not fully grasp the nuances of individual financial goals, risk tolerances, and personal circumstances. This is where a human financial adviser can help you make more informed decisions that account for various moving parts.

Many consumers also worry about how implementing AI in their daily lives will impact them. A 2024 study by PYMNTS.com found that consumers are worried about how using AI makes them more dependent on technology and susceptible to privacy breaches.

Ultimately, it’s important to use your best judgment when relying on AI to guide your financial decisions. These tools can serve as a great starting point and give you the information you need to start moving in the right direction.

AI prompts to help improve your finances

There are several AI chat tools you can use to get answers to your money-related questions and create personalized financial plans. These include:

ChatGPT
Gemini
Chatsonic
Microsoft Bing
Claude

Consider using the following prompts to get started on your financial planning journey.

I need a financial plan for someone earning $XX,XXX per year.

You can be more specific and include key details such as your monthly expenses, debt balances, and savings goals.

I am hoping to pay off my student loan balance of $XX,XXX in five years. I need a financial plan that allows me to do that.

Many AI tools allow you to elaborate and ask follow-up questions so you can be more specific about how much you can afford to put toward your debt balance each month and any competing financial obligations.

My partner and I are hoping to purchase a home within the next two years. How can we create a financial plan to make that happen?

Based on your income, savings, timeline, and budget for your new home, an AI tool can help you identify how much you should put away each month to purchase a home within your desired timeline. Of course, it’s important to remember that your finances can change, and your plan may require some adjustments along the way, but if you have a framework in place, you can begin working toward your goal now.

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