5 Reasons AI Money Advice Isn't Foolproof, According to Financial Experts
While it makes sense to turn to free advice found on AI chatbots, there are limitations and dangers to blindly accepting financial guidelines from someone outside of a trusted advisor.
Still, according to a recent survey from JD Power, 40% of consumers admitted to using AI to help manage their finances, with 27% sharing that they found it to be at least somewhat helpful. The survey found that only 34% of consumers felt that they were financially healthy, as Americans continue to struggle with rising costs.
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We consulted with experts to learn about the times when AI-generated financial advice falls short of traditional expertise. Here are the five main dangers of AI-generated financial planning, according to financial experts.
1. Generic Advice That Doesn’t Apply to Your Unique Situation
According to Willis Allstead, founder of smart financial planning app Bonsave, “Any chatbot that provides financial advice without read-access to your real accounts will give generic advice right off the bat."
He stressed that advice to pay off all of your debt first may sound responsible, but if you choose to skip a 401(k) contribution to do so and miss out on a match, that might not actually be a great idea for you. The problem with a chatbot is that it doesn’t understand your nuanced financial situation, and there isn’t always a one-size-fits-all approach.
2. Getting the Numbers Wrong
Allstead said another huge potential issue is the validity of the numbers being sent back. He elaborated, “One thing everyone has come to learn about AI is that it often completely hallucinates answers. For a dinner recipe, that's inconvenient. But when a chatbot tells you you're two years away from reaching your safe retirement age when you're actually five years away, that's when things get genuinely dangerous.”
This could cost you in the short term and long run because you could make an important life decision based on incorrect data. Another issue with AI financial planning in the short run is that the chatbot may not have access to accurate numbers when it comes to credit cards, loan products and savings accounts.
Even worse, AI can suggest financial products that don’t align with your credit profile or financial goals while also ignoring hidden fees that you could be hit with.
3. Overconfidence With Incorrect Advice
“A big issue with AI is that it gives people advice in a decisive tone when it can’t actually formulate an accurate response given the situation,” remarked Kevin Shahnazari, the founder and CEO of Savvo Technology. He emphasized that it’s tough for AI to give good financial advice when it doesn’t actually know much about you (your debt, tax situation, financial goals and so on).
The experts agreed that AI can provide financial advice with confidence without understanding the full financial picture. The reality is that a human advisor who isn't sure will usually say so and follow up after researching to gain confidence on the topic and provide accurate information for your situation.
4. Can’t Be Held Liable
Allstead pointed out that unlike a human advisor, AI has no fiduciary responsibility, making it harder to hold it accountable. This means you could make an investment or important financial decision based on advice given by a source that can’t be held legally responsible for any possible consequences.
The chatbot also doesn’t understand your risk profile or personal situation, which could lead to poor advice that costs you money in the long run.
5. Bad Financial Advice Can Compound Into Something More Serious
Allstead noted that making many decisions based on bad data compounds, and your long-term financial situation can be compromised. For example, incorrect calculations can delay your retirement or hurt your savings if you act on false assumptions. When you outsource financial advice to a tool that might not know your goals or have access to your real accounts, you could end up making a series of poor decisions that would hurt your future retirement or current living situation.
“AI is best for helping you explain and draft questions for advisor meetings. AI is excellent for preparing and explaining complex situations in financial topics," Shahnazari concluded. "However, AI should only be used for learning about financial topics, not for making important financial decisions. AI should never be used as financial advice for important financial decisions.”
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice. It was created with the assistance of artificial intelligence and reviewed by our editorial team for accuracy. However, AI-generated content may be inaccurate, incomplete or outdated. You should independently verify important information through reliable sources before making any decisions based on this content.
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