Seven golden rules for using AI to manage your finances

Four out of five less experienced investors aged between 18 and 40 have used AI to help with their investing, but only 40% of consumers understand there would be no-one to compensate them if they followed AI tips and lost money.

These are some of the headline stats delivered by the FCA’s chief data, information and intelligence officer Jessica Rusu in a recent speech about the use of AI in people’s finances.

AI is like a sledgehammer. While it can be an incredibly useful tool when used effectively for the right jobs, it can cause all sorts of damage when used in the wrong way. If you’re thinking about using it for support in managing your money, it’s worth getting to grips with the ways it could help and the means to ensure you’re steering clear of the pitfalls.

If you are going to use AI for support with anything related to your finances, sticking to some rules should mean you’re getting the best out of it without making avoidable mistakes.

1. Never mistake AI for a financial adviser. They may sound like a confident expert, but they don’t know you and they’re often wrong about financial matters too.
2. Ask it to explain, rather than to decide. It’s not equipped to make decisions for you.
3. Don’t share your personal data. If you wouldn’t send something to a company you’re not familiar with, don’t give it to Chat GPT.
4. Think about your questions very carefully. Make sure you include enough detail to get meaningful answers.
5. Check the answers. Don’t simply believe anything it tells you. Ask for proof, and then check the websites it got the information from. Check any calculations too – it can make mistakes even when just adding a few numbers up.
6. Ask it to outline any assumptions it has made. That will allow you to check whether it’s making incorrect assumptions about you.
7. Remember you are ultimately responsible. If you let it choose investments for you and it make a mistake, it’s you that pays the price.

Crucially, don’t just follow the suggestions of an AI system blindly. It can be a useful research tool or help speed up otherwise laborious financial admin but, in the same way you wouldn’t automatically trust financial tips from an individual without doing detailed research, don’t just assume something AI tells you is a given.

Your financial choices impact your bank balance and yours alone. So don’t be tempted to ask AI to do all the financial thinking for you. If things go wrong, you may find yourself speaking to a human to try and fix it.

Budgeting

You need to be careful about giving too much information to the AI bots about your financial position, because you can’t be sure how your information will be used. If you ask them to help you budget better, they may suggest you upload your bank statements, for example, which could pose a security risk.

Instead, you could upload relevant income and spending information – or amalgamate types of spending – and ask it to create a reasonable budget that’s not too restrictive but allows you to save at the end of the month.

If you want to cut your supermarket spend, you can ask it to draw up a meal plan and shopping list, taking advantage of current supermarket deals. You could even send it your shopping list and ask it to cut your spending by 20%.

Bills

There’s a risk in just asking AI to find you the cheapest deal for something like insurance or energy, because it may not know enough about your needs, or it could focus on price and neglect other considerations. It’s also not consistently able to trawl price comparison sites so will miss things, and may be affected by sponsored results.

Instead, when you’re renewing insurance, you can run the assumptions you have made through AI to make sure you’re not overinsured. It can check whether your rebuild cost estimate is realistic, or the contents cover is suitable. It’s also great at reading the small print, so if you have a renewal quote you can upload the policy from last year and the quote for this year and get it to check line by line for any changes in cover and costs.

Consumer rights

You should think twice before using AI templates to challenge debts, parking charges or bills. Often they can be based on rules from elsewhere in the world. You should also beware of asking it to come up with questions. Everyone from lawyers to financial advisers says they have started to receive long emails with multiple questions that don’t make any sense, which they suspect are AI-generated.

However, if you’re nervous about calling a provider and negotiating for them to lower your bills, you can ask the large language models to write you a script – including strong replies if they initially refuse.

Saving

Savings comparison sites are still a brilliant way of finding competitive rates and AI isn’t consistently good at tracking these down. However, AI apps can help with the mechanics of saving, by calculating how much to move into savings pots, based on your current balance and what it calculates your future spending patterns are likely to be.

Investing

There’s a real risk people treat AI as an adviser, and just ask what investments to buy and follow the tips, rather than checking the analysis. They may not have provided enough information to get an answer that’s tailored to their needs. They may be asking the wrong questions, like ‘what’s the new Nvidia?’ without including any points around valuation, risk tolerance or diversification. AI may also neglect to point out that looking for investments in individual stocks won’t be right for everyone in the first place, and many people will be better served by investing in a diversified mix of assets through a multi-asset fund, for example.

For instance, if you ask ChatGPT for investment tips on high growth investment opportunities it may ask you some questions that appear to be sensible, like a timeframe over which you’re expecting to see returns. But, in one example we found it presented a menu of options ranging from less than a year to five-plus years. It doesn’t really explain that investing over a very short timeframe of less than a year is never a good idea. Instead, investing should be something you do for the long-term. A more sensible suggestion for someone looking for a return over a short timeframe would be to use savings accounts rather than trying to invest for a quick win, which could easily turn into a quick loss.

Even if someone asks sensible questions and provides a huge amount of information in the prompt, AI can simply be wrong. It might be using outdated information, or just be hallucinating. It can sound totally confident while being completely incorrect. There’s also a tendency for AI to agree with you. So if you ask for reasons why you should buy a stock, it will start from the assumption you should buy it and look for things that reinforce that view.

Instead, you can get it to help with some of the background research. So, for example, you can get it to explain jargon or what different types of investment are. You can ask it to build a case against something you want to invest in, so you see both sides of the argument. You can also get it to summarise reports and factsheets, although before you use the information, you’ll need to check the original documents to make sure it hasn’t invented anything.

Advice

It is critical for people to understand that a large language model online shouldn’t be trusted as a source of advice that can replace a professional financial adviser. AI can give you decent information on tax, pensions, rules around savings and things to consider when investing.

But the results it puts out are only as good as the prompt the user puts in. One of the most valuable things a financial adviser can do is ask the questions you didn’t know to ask and think about your entire financial position holistically.

Unless you’re a financial mastermind, chances are you won’t have considered everything you need to account for in a major financial decision and the AI response you’ll get will reflect those limitations in your own knowledge.