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August 10, 2023
It is hard to read the news without coming across an article about artificial intelligence (AI). It is very powerful technology with substantial applications and various pros and cons. But, can it help you make better financial decisions? What are the pitfalls of using AI to manage your money?
Let’s take a high level exploration:
AI refers to systems that simulate tasks associated with human intelligence. These tasks include reasoning, problem-solving, learning, perception, language understanding, and decision making.
ChatGPT is the most well known application of AI right now, but there are other versions as well. ChatGPT is an AI-powered conversational model, also known as a large language model (LLM), designed to understand and generate human language. It learns from the vast amount of text data it’s exposed to during training, and this learning allows it to generate coherent and contextually appropriate text in response to prompts. GhatGPT and other LLMs can understand and generate human-like responses, providing very detailed answers to questions in a conversational way.
So, I asked Chat GPT how it might approach answering the question, “when can I retire?”
It gave me the following approach (which is not actually very different from how you would solve the question using the NewRetirement Planner):
This is a sound process, but the reality is that ChatGPT doesn’t ask questions, it provides answers. And, getting good financial answers requires a lot of very important questions.
When you ask ChatGPT a simple financial question, it will provide a generalized answer. But, it doesn’t usually help you get to a personalized and specific value.
There are so many different ways to make a financial decision. AI is one option and it will get better. Using a comprehensive financial model is another approach that may be more reliable as of now.
Using a tool like the NewRetirement Planner gives you control, accuracy, customization, and consistency. It is the most comprehensive planning model available online and currently has huge advantages over AI because it has much more insight into a user’s financial situation and goals. The tool can provide more nuanced and accurate forecasts than AI can currently.
The core of NewRetirement is FPE our Financial Planning Engine. It is the model through which all calculations go through. This model is used every day by an active community of tens of thousands of end users who are continually providing feedback on accuracy and ways it can be improved. We built and know how the model works and why it works a certain way. The same is not true of LLMs like ChatGPT today. With LLMs we can’t explain the why or how it comes up with answers, which needs to get addressed before people start making decisions about their life savings on the platform.
A hybrid approach: Financial models currently provide more reliable and defensible answers than AI. However, AI (or human generated articles or consultation) is ideal to assist in interpreting those answers.
We at NewRetirement are actively working on applying big data and machine learning to plans in addition to considering how AI technology like ChatGPT can be leveraged to help improve education and use of our tools.
The AI approach is sound, but there are several issues and challenges related to the use of AI in financial planning.
A lot of the discussion around AI in financial planning revolves around whether or not a human advisor is a necessity or not. Human advisors provide a huge value to many. However, they are expensive and there are not enough of them to serve all people.
We at NewRetirement believe that the most important human when it comes to financial planning is YOU – not the advisor. We believe that guided financial planning experiences that involve both AI and sophisticated financial models are the future of advice.
A guided hybrid experience using calculations, AI, and human support will insure that your goals, values and priorities are accounted for. Our Financial Planning Model (FPE) will continue to provide mathematically rational answers based on our evolving algorithm. AI will help generate additional options for you to consider and provide interpretation and education about your options. And, we will provide access to human experts when you need the support.
AI will be used to help us continue to deliver on our mission to make high quality and unbiased guidance available, affordable, and understandable to everyone. But, we will never lose site of your humanity and the need for connection and guidance.
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