AI Chatbots Offer Financial Advice, But Users Should Exercise Caution

A growing number of Americans are turning to artificial intelligence tools like ChatGPT for financial advice, but experts caution that these nascent technologies come with significant risks. Nearly 20 percent of Americans have used AI for financial guidance, with adoption higher among younger generations, according to an August Gallup poll.

OpenAI's recent rollout of a dedicated personal finance tool within ChatGPT Free and Go in the United States, which allows secure bank account connections via platforms like Plaid, signifies a major step in making AI financial advice more widely accessible. This development offers the promise of hyper-personalized advice at a fraction of the cost of a human financial advisor, potentially improving financial literacy for many.

Potential Benefits and Limitations

Taha Choukhmane, an associate professor of finance at the MIT Sloan School of Management, has found that AI tools generally provide good advice, which improves as users become more adept at formulating questions. "We were actually quite surprised that relative to the status quo, the average American would be better off if they were to follow the advice," Choukhmane stated. However, he also noted, "Just following the advice without understanding the advice puts you at risk of not fully understanding the risk."

Experts emphasize that AI financial advice is not always impartial. The finance industry has a vested interest in promoting specific products, a bias that can be reflected in the data used to train AI models. John Campbell, an economics professor at Harvard, explains that AI models are likely to mirror the average of information available online, which may not always represent the best financial strategies. For instance, advice on when to claim Social Security benefits can be conflicting, with some sources recommending early claims to reduce advisor fees, a potential bias that AI might perpetuate.

Furthermore, AI can be prone to "hallucinations" and may generate plausible-sounding but incorrect information. Users, particularly those with lower financial literacy, may struggle to identify bad advice, making them vulnerable to costly mistakes. The risk is compounded because AI tools are not regulated like human financial advisors, who are bound by fiduciary duties.

Data Privacy and Security Concerns

Beyond the accuracy of the advice, significant concerns surround data privacy and security. Sharing sensitive financial information with AI chatbots entrusts tech companies with personal data, despite their promises of security. A history of data breaches and privacy violations serves as a stark reminder of these vulnerabilities. Companies may use user data to train models or serve personalized advertisements, and there is a risk of accounts being compromised by bad actors.

Delicia Reynolds Hand, a senior director at Consumer Reports, warns that access to this information could enable identity theft and financial ruin. The situation is further complicated by the emergence of AI agents capable of logging into bank accounts and executing transactions on behalf of users. This capability poses a challenge for banks and raises questions about accountability when AI agents make errors.

Navigating AI Financial Advice

Experts recommend a cautious approach: "Trust, but verify — and then delete your data." Users should treat AI chatbots as informative tools rather than decision-makers. Interrogating the advice given, challenging its assumptions, and cross-checking with reputable sources are crucial steps. Starting with general questions and gradually providing more personal details, while being mindful of privacy settings, is advisable.

For those with limited financial knowledge, AI can be a starting point for learning, but it should not replace seeking advice from licensed professionals for significant financial decisions. Complementary learning through books, reputable websites, and educational resources from institutions like the FDIC and Khan Academy, as well as engaging with personal finance communities, are also recommended. As personal finance education becomes more integrated into high school curricula, AI tools can serve as a supplementary resource, but careful and critical engagement remains essential.