Can AI Create Healthier Financial Futures?
Fintech has widely adopted AI technology to support calculations, compliance and best practice alignment. But can it make us spend smarter?
AI has the potential to help people improve their savings, investment and financial planning outcomes. It can run predictive models, reference IRS rules and use industry best practices. But what about the human factors? It can’t make you spend smarter, right?
This complex question has become a central focus for financial planners worldwide, particularly as we consider the impact of AI on our work styles, client relationships and — quite frankly — our livelihoods.
Despite our best intentions, people invariably struggle to make sustainable behavioral changes when it comes to curbing spending and increasing their savings and investment capacity.
Is financial decision-making a viable AI use case? It depends.
In theory, financial decision-making can be pretty logical — it’s just math and common sense after all. In this sense, it seems like the perfect use case for AI.
But reality isn’t always so simple. Our financial decisions are often (and sometimes, disproportionately) motivated by emotional factors that can cloud our thought process and lead to hasty purchases or investments.
AI has the potential to help break bad habits algorithmically by identifying patterns, nudging point-of-sale behavioral changes, challenging emotion-based assumptions and motivating progress on financial goals. However, in order to effectively harness this opportunity, we can’t lose sight of the human side of wealth management.
How our emotions impact our finances
Every financial decision is driven by an emotional trigger — fear, desire, love, grief, and so on.
Thoughtful plans alone do not always translate into action, and other, more complex feelings tend to take over as we consider potential impacts and next steps — Where do I start? Do I know enough? Is it too late? What if I make a mistake? What if the market drops? What will banks and regulators do next? How will this decision impact my future?
For better or for worse, anxiety, self-doubt, uncertainty and feeling out-of-control are just part of doing business in the modern financial landscape. Regardless of how much reliable information we have at the time, these emotions are real and can alter our behaviors in ways that can both driveimpulsive decisions and hinder potential windfalls.
Financial planning is more than just math
Consumers have already expressed interest in AI-based money management, and there’s a number of opportunities for AI to support budgeting, planning, debt simplification and fee reduction. Logic-based tracking of inflows and outflows can help provide a more complete picture of financial decision-making at the transactional level. As we continue to innovate, however, we must recognize that there’s a human behind every line item.
Financial planners know this firsthand. Given the nature of financial decision-making and the lasting impacts of longer-term investments, planners must be adept at detecting their clients’ anxiety, stress or uncertainty in order to serve them effectively.
More specifically, planners are taught to be aware of their clients’ emotions and how certain presumptions and past experiences can create cognitive biases. Any good practitioner takes this into account when advising their clients on investment decisions.
With all the complexity and uncertainty that pervades the financial landscape, that’s not always so easy to do. This is why there’s no one right way to advise a client.
So, where does AI fit into the equation?
AI offers a powerful check to our presumptions and biases.
AI models are thousands of times faster and better than humans at data processing and running arithmetic operations, allowing us to run multiple scenarios many thousands of times over as we form our strategies.
While AI is undoubtedly imperfect and has the potential to be quite dangerous in the wrong hands, there are strategies for mitigating both logical and discriminatory biases, as well as increasing transparency and understanding of AI outputs among all users. This does mean that using it effectively will require a certain level of vigilance and analysis, but therein lies the opportunity.
During a viral panel on CTV’s “The Social,” futurist Sinéad Bovell said it best, “We need to raise the bar on what humans bring to the table.”
Pulling from Bovell’s example of how calculators impacted the level of math studied in classrooms, all that processing power means that financial planners have a chance to rethink how we help our clients, and consumers will have increasing power to inform their own financial futures.
As AI gets better and more efficient at processing consumer spending and investment data, the humans working with these models can and should become adept at discerning junk outputs, designing measures of success and accounting for the emotional and environmental factors that drive our clients’ financial decision-making.
The bottom line
AI isn’t ready to make unsupervised decisions, particularly when it comes to our financial futures.
However, AI is and will likely continue to become an increasingly invaluable tool in the financial planning toolbox — so long as we learn how to use those tools to our collective advantage by inspiring healthier, more evidence-based financial decision-making.
Financial planners must continue to work to help clients understand why they want what they want, explore goals, visualize outcomes, communicate finances with loved ones and design action plans to achieve their desired objectives. AI offers an opportunity to accelerate that process, while leaving more room for people to do the cognitive and emotional work necessary for mutual success.
With this approach, advisors and consumers alike can design more tailored strategies and refocus their efforts — allowing the technology to support individuals’ behavioral and financial growth along their respective personal and professional journeys.
Want to advance your fintech knowledge? Subscribe to our mailing list to receive our monthly newsletter and stay up to date on the latest insights, events and opportunities from FintechWomen.
