Many Americans struggle with managing their finances. A study reveals that 4 out of 10 Americans could not manage an unexpected expense of $400. A new breed of money apps, powered by artificial intelligence (AI) and aimed at grabbing consumers’ attention when they need help the most, are trying to come to the rescue.
Olivia Moore, a young Chicago resident, managed to cut her $20,000 debt in half in less than two years using an app called Tally. This helped her realize the impact of high credit card interest rates on her finances. But apps come with limitations and some risks.
AI can’t do everything for everyone. When an algorithm kicks in, after all, humans always make the final decisions to save or spend. And some consumers worry about a loss of privacy or the risk of a data breach. Mary Wisniewski, an analyst at Bankrate who has tested AI-powered savings apps, says she’s had enough of all the alerts and “a bit paranoid about data sharing.”
Why we wrote this
As consumers grapple with credit card balances and meager savings, AI-powered apps are offering new ways to take control of their finances. But some say this new approach to fiscal responsibility still needs a human touch.
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Chicago’s Olivia Moore was $20,000 in debt when she downloaded Tally, a personal finance app designed to help customers pay off their credit cards. With Tally’s help, in less than two years, she was able to cut her debt in half. Similarly, Callie Person from Florida turned to an app called Charlie, and in less than a year she was able to put aside $1,500 in savings.
In a nation facing not only tight debt and income, but also gaps in financial literacy, these are significant victories.
And these apps have a distinguishing feature: Tally and Charlie are the first examples of deploying artificial intelligence, or AI, to help with personal finances.
Why we wrote this
As consumers grapple with credit card balances and meager savings, AI-powered apps are offering new ways to take control of their finances. But some say this new approach to fiscal responsibility still needs a human touch.
It’s a way for time-pressed consumers to get nudges — based in part on data about their own past behavior — to align their small, day-to-day decisions with longer-term goals. But as with many technologies, these uses of AI also come with caveats. This early phase of AI-enabled applications may reveal caveat lessons that coexist with their emerging promise.
“Technology can do a lot of good things to help people with their finances — especially to assess, measure and track, to offer curated learning resources, and to push and remind,” says Cynthia Meyer, resident financial planner at Financial Finesse, a financial education program. “But he can’t be empathetic, be a compassionate witness to someone’s struggles or worries, reflect on the moment, offer nuanced perspective, or find the ‘question behind the question’ like a human financial planner can.”
For many people, including people in their twenties like Ms. Moore and Ms. Person, it seems the caveats don’t outweigh the convenience.
“It doesn’t seem weird or out of the ordinary” to let an app like Tally access personal data, Ms Moore says in Chicago. “I am a young millennial and have grown up with all forms of technology, including AI. … I understand that in order to receive a certain level of service, you have to give a certain amount of information, and I I agree with that.
And for her, the benefits were visible. Tally issues users with a line of credit, allowing the app to make credit card payments for them and then charge a lower interest rate. It also served as a debt warning, in a way that credit card statements had not done for Ms Moore in the past. “Tally reminded me that these rates are very real and very, very high.”
A great need for financial assistance
Although millions of consumers are now using AI-powered financial apps, the apps still lag behind more traditional online financial tools. But supporters see reasons for growth.
These apps are empowering because they show consumers in a user-friendly way how to save money or pay off debt, says Carla Dearing, CEO of online financial wellness service SUM180.
“It’s important to recognize that customers who use AI-enabled banking apps typically have a much higher level of engagement than standalone apps,” says Jody Bhagat, Americas president of tools provider Personetics. of AI.
And they rise at a time of need.
Most Americans struggle with managing their finances. According to a 2018 Bankrate survey, 20% of Americans don’t save money. According to a 2018 Federal Reserve study, four in 10 Americans couldn’t handle an unexpected expense of $400.
“The big picture is that Americans don’t like managing their finances,” says Thomas Smyth, CEO of Trim, an app that scans consumers’ bank and credit accounts to find recurring subscriptions and payments, then offers the possibility of canceling them.
“The problem with saving and projecting finances is that it’s a difficult and awkward conversation to have,” says Brian Wolfe, assistant professor of finance at the University at Buffalo School of Management. It might be easier to interact with a robot than to look a financial planner in the eye and feel like you’re being judged, he says.
The limits of AI tools
Yet many financial experts warn that AI tools each tend to address a single challenge, rather than provide a detailed or individualized long-term financial plan.
Without a financial advisor, says Ms. Dearing of SUM180, it’s difficult to address some of the more complex issues such as emotional spending or couples with different spending habits. And if you’re facing eviction or drowning in college loans or credit card debt, an application probably isn’t your answer.
Another challenge: when AI speaks, will consumers listen?
“Sometimes we trump apps,” says Bryan Routledge, a finance expert at Carnegie Mellon University’s Tepper School of Business in Pittsburgh. When your Fitbit pushes you to walk, some people just take it off. Likewise, some people will ignore a financial app telling them they’ve already spent their discretionary budget for the month, especially if they just stopped by Target with a kid who needs a new pair of sneakers.
Is it safe?
The biggest issue could be the amount of financial information you need to disclose to use the apps, says Professor Wolfe at Buffalo. Nearly nine in 10 U.S. banking consumers say they are concerned about privacy and data sharing, according to a The Clearing House 2018 Report.
Mary Wisniewski, an analyst at Bankrate, tests AI-powered savings apps daily, but so far none have become part of her daily life. “I got a little paranoid about data sharing,” she admits. Plus, the apps don’t match her money-management personality, which she describes as hands-off. She was tired of receiving “all kinds of alerts”.
AI executives are fully aware that consumers are nervous and that a security breach could be a business-ending event. The app companies cited in this article claim that they never sell user data, do not allow advertisers to use the data for targeting, and keep the data securely encrypted.
Ultimately, financial experts say sometimes old technology still has its value, like how traditional banking apps can give an automated reminder when your balance is low.
“For consumers, the smartest thing they can do is use direct deposit to save 10-15% of your paycheck and have it automatically go into a savings account,” says Mark Schwanhausser, Director of Digital Banking at consulting firm Javelin Strategy & Research. .
But many experts also say that integrating an AI-powered app with a coach or financial planner could be a powerful combination, as long as you understand how to use the technology and have a basic level of literacy. financial.
Consumers don’t always understand what the app is telling them to do, says Annamaria Lusardi, founder and academic director of the Global Financial Literacy Excellence Center at George Washington University in Washington, D.C. tool works for you,” she says.
Even Callie Person, who saved $1,500 using Charlie, cautions against relying solely on technology. “Charlie is not a substitute for sitting down, creating a budget, and having important conversations about finances with your partner,” she says. She calls it an aid “to help get you on the right track to managing your finances.”
