Can You Use AI for Financial Advice?

Maybe you’ve never touched it. Maybe you merely dabble with it from time to time. Maybe you use it every day and can hardly imagine life without it. Regardless of which category you fall under, by now you’ve certainly heard all about it.

We're referring, of course, to artificial intelligence.

Since ChatGPT exploded onto the scene in late 2022, AI has been a never-ending topic of conversation. It dominates online discourse, the halls of government, and even the markets. Especially the markets.

But one question we're often asked is:

“Can I use AI for financial advice?”

The answer is yes. You can.

But should you? That’s a bit more nuanced.

AI is fast, convenient, and powerful. But your finances, including your investments, savings, income, taxes, debt, and the dreams they empower, represent your life. As with any tool, we have to be careful about when to use it and when not to.

What AI Is and What It Can Be Used For

When people talk about artificial intelligence today, they are often referring to tools powered by large language models, or LLMs. ChatGPT, Claude, Gemini, and other chatbots use LLMs to calculate the statistically most likely next word in a sentence.

It’s sort of like the autocomplete function on your phone when you write a text, except much more powerful.

It’s important to remember this when interacting with AI. What you are seeing is not actual intelligence, but extremely sophisticated pattern-matching.

If you ask an AI tool a question like, “What’s the difference between a 401(k) and an IRA?” it draws from the material it was trained on and generates a response based on which words are statistically likely to answer the question.

For that reason, the best and most reliable way to apply AI to your personal finances is to treat it like a more in-depth, conversational Google search.

It can be an excellent way to:

• Get a quick answer to a general question, such as, “What age can I start taking Social Security benefits?”
• Search for resources, such as information that may help you find, purchase, and manage a vacation home.
• Check your thinking by asking whether a common assumption is accurate or whether there is more to consider.

AI is also useful for organizing, filtering, and finding data.

For example, let’s say you wanted to build a budget for an upcoming vacation. You could give an AI tool the amount of money you have available, along with a list of places you want to see and activities you want to do. It could then organize that information into a spreadsheet with expenses broken down and itemized.

AI can also summarize a document, pull data from a report, or help you compare different financial choices.

Why You Shouldn’t Rely on AI Too Much

With all that said, AI has some definite flaws and limitations. That is why it should not be overly relied on when it comes to your finances.

For one thing, AI is prone to something called “hallucinations.” This is when a chatbot generates information that is inaccurate or simply made up.

It doesn’t happen all the time, but it happens often enough that any important information should be verified through a reliable source.

The reason this happens is connected to how AI works. If an AI system lacks the correct information to answer a question or follow a prompt properly, it may generate a plausible-sounding response based on the information it does have.

Another reason AI can be an unreliable partner is that it may make assumptions and allow those assumptions to affect what it generates.

For instance, a study highlighted by the MIT Sloan School of Management found that AI tools sometimes assumed the gender of the person prompting them based on the words they used.¹ The tools then changed their financial recommendations based on that assumed gender.

According to the study, advice generated from prompts written by women resulted in nearly $60,000, or 4.10%, less projected wealth than advice generated from prompts written by men. The difference was largely driven by lower recommended equity exposure and less active rebalancing.

Which brings us to the most important reason you should not overly rely on AI:

AI is superb at providing information. It is not well-suited for giving advice.

Financial Information Is Not the Same as Financial Advice

What’s the difference?

The act of informing is essentially providing facts and data meant to educate.

Advice, on the other hand, is a recommendation based on your specific situation. It is meant not just to increase your knowledge, but to help guide your decisions.

This is not yet something AI is very capable of doing.

Think again about what AI is and how it works. It generates text based on statistical plausibility. That means any advice it gives is not truly specific to you.

Providing more input can improve the quality of its output. But sometimes, not knowing what information to provide is the reason for asking the question in the first place.

Every answer will still be based on pattern-matching. It will not be truly tailored to your past, your personality, or your emotions.

AI doesn’t know you. It’s just really good at statistics.

That matters because, just as your financial goals are intensely personal, so too must be the path you take toward them.

The media often portrays financial goals as the same choices on a menu that everyone has to select: retire by a specific age, travel a certain amount, or leave a legacy for your children.

But that’s surface-level stuff.

A person’s real financial goals are often much more complex:

“I need to retire so I have more time to take care of my disabled sister, but I’m afraid I won’t have the money to do that and still accomplish my bucket list.”

“I’ve always dreamed of seeing the small village in Germany where my great-grandparents got married, but inflation and market volatility make it feel impossible.”

“I want to leave my family a legacy, but my oldest child has passed away, leaving two kids of his own behind. My second lives in a different state, and my youngest isn’t good with money, so I don’t know how to divide my assets fairly between all of them.”

It's these situations, these needs, and these dreams that require not just information, but advice.

And not just any advice, but advice truly specific to you.

Using AI as a Financial Tool

AI is an exciting tool. It has come on by leaps and bounds in recent years and will likely continue to play a major role in society.

But while it has plenty of uses, all tools must be used carefully, thoughtfully, and only in the right situations.

Just as a wrench can’t replace a hammer, and a hammer can’t function as a saw, AI is excellent for information and organization.

But it’s not the best thing to turn to for personal financial advice.

Frequently Asked Questions

Can AI answer general financial questions?

AI can be useful for answering general educational questions, defining financial terms, locating resources, and helping organize information. Important facts should still be confirmed using reliable and current sources.

Is it safe to give an AI tool my financial information?

Be cautious about entering personal, confidential, or account-specific information into any online AI tool. Review the tool’s privacy and data-use policies before sharing sensitive details.

Can AI create a financial plan?

AI may help organize information or illustrate possible scenarios, but its output is not truly personalized advice. A financial plan should account for your complete circumstances, goals, concerns, family relationships, and changing needs.

Sources

¹ Half of Americans now ask AI for financial advice, but how good is it? (MIT Sloan School of Management)

Disclosure

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