According to one study, 1 in 10 adults in the US say they are “not at all financially literate.” This financial illiteracy crisis is due to no fault of their own, but the fact that the appropriate resources to provide them with the financial literacy they would need are not available to them.
Thankfully, innovative new tools powered by artificial intelligence technology — such as AI tools for investing — are paving the way for an exciting future with greater financial literacy.
The disparity in access to financial literacy resources
In the aftermath of the 2008 financial crisis, tools were introduced that helped individuals better access and control their financial literacy. However, the insights provided by these tools were surface-level — they could tell individuals what their credit score was, but not provide anything in terms of recommendations on how to improve their financial situation.
Unfortunately, this issue is perpetuated by the fact that many individuals don’t always have access to high-quality financial advice. Financial advisors are busy, and particularly when it comes to their lower net worth clients, they might not have the time of day to answer every little question.
Artificial intelligence tools have been developed to allow users to get their more basic financial questions answered. This means they need only contact their advisor for their more in-depth needs.
One of the main reasons why these artificial intelligence-powered financial tools is that they will provide financial inclusion for underserved groups. Studies have shown that the diversity among the ranks of certified financial planners is sorely lacking, and that the levels of representation within the broader financial services industry fall in line with those seen among CFPs. Given this, it’s no surprise that there is a massive racial gap in financial literacy.
How AI can help improve financial literacy
Artificial intelligence-powered apps can offer more personalized recommendations about how individuals can improve their financial situations, which will be a massive boon to their financial literacy. Through a snapshot of the user’s financial accounts and spending habits, the AI can provide recommendations on savings plans or how to cut spending to reach specific goals set by the user. Artificial intelligence apps can also do research on behalf of the user, allowing them to approach investment with a better understanding of the risk involved.
Of course, there are certain limitations as to what data can and should be input into an artificial intelligence program. For example, sensitive data such as credit card numbers, bank logins/passwords, or other information that could be exploited by hackers should not be stored by these apps.
In other words, these apps can only offer guidance — not take action — for users. Furthermore, their recommendations should not be considered financial advice, but suggestions on how to empower better financial decision-making.
With this in mind, these AI financial tools are most effective when used in conjunction with a human financial advisor. Artificial intelligence can free financial advisors from the burden of answering more basic questions, allowing them to focus their time on giving the more complex investment strategies that these programs are not yet qualified to provide.
The potential impact of AI-powered financial literacy tools
The direct effect of these artificial intelligence-powered financial services tools is that they will empower more people with financial independence. For those whose portfolio is not large enough to get the attention of serious financial advisors, or who may feel embarrassed to ask questions about their financial situation, these tools can be a valuable resource that will at least provide them with better insight and guidance than they previously had.
The impact of better financial education tools — such as AI-powered apps — could be wide-reaching and profound. For example, studies show that many Americans are not prepared for retirement, and many would not be able to endure a severe financial crisis if one arose.
With the improvement and availability of these tools, people will be left less vulnerable to these emergencies, which will have a positive ripple effect on the economy as a whole. Just as these tools have gone through massive improvements over the years, experts expect the technology to continue to improve — and its capabilities along with it.
For example, although artificial intelligence apps are currently not able to give financial advice, there is a foreseeable future where these apps could eventually be certified as financial advisors to give qualified financial advice. This would even further level the playing field for those who are disadvantaged in access to financial literacy resources.
Artificial intelligence has revolutionized many industries, and the financial services industry seems poised for changes for the better. AI-powered fintech apps for investing can give users the financial literacy resources and guidance they need to improve their financial situations through better spending and savings strategies and habits.
