Personal Finance

Rise of the Money Machines: Can AI Fix Personal Finance?

By Andy Taylor, Founder and CEO of Douugh

Douugh is a purpose-driven fintech startup dedicated to helping people manage and grow their money autonomously.

Thanks to sci-fi movies like the Terminator, artificial intelligence (AI) or “the machines” often get a bad rap. Robots are portrayed as something to be feared or at least not to be trusted. However, the reality of AI is actually much less sexy and much more useful. AI and machine learning technologies are being applied to industries from manufacturing to money management to help improve efficiency and drive returns. 

We all know money can be a major source of anxiety. A recent study by FINRA found that 50% of people felt stressed while talking about their finances, and 60% were stressed just thinking about them. The top reasons for financial anxiety include: high debt, low financial literacy, and money management challenges.

Meanwhile, a recent Oracle study found that 59% of people trust a robot with their finances more than themselves. AI-driven fintechs are creating a new niche of autonomous finance, and consumers should know how to best leverage them. AI can improve people's overall personal finance fitness, just like wellness and exercise apps can help boost overall health. It’s a tool to help people. The key is consistency and accountability, and following a plan.

Advances in AI and open banking that benefit everyday people

AI tools allow financial technology companies to process and analyze large amounts of data, then apply those findings to make more informed decisions. Not only are decisions “smarter,” but they can also happen faster.

Open banking, also known as open bank data, is a banking practice that is helping to drive innovation in the industry. It provides third-party financial service providers open access to consumer banking, transaction, and other financial data from banks and even non-bank financial institutions via application programming interfaces (APIs). These interfaces allow different apps to connect with each other to share data. So with this software, a personal finance app can import data from your bank accounts, credit cards, utility bills, loan providers, etc. and get a full picture of your financial situation.

This data is then analyzed by AI and used to provide personalized advice, recommend financial products that might be helpful, and even help make forecasts about your financial future.

By using open banking, consumers, financial institutions, and third-party service providers can tap into a network of accounts and data across institutions. This information is then leveraged to streamline processes and improve financial performance and decision making. AI, data science tools and data visualization can process complex data — and large volumes of it — and turn it into digestible customer insights. Machine learning is the ability of machines to get smarter and actually “learn” from the patterns of data they analyze. The more data that’s fed into it, the smarter it gets, and the less a human needs to be involved. 

What kinds of financial decisions and processes can be automated?

A wide range of financial activities can be put on “autopilot.” Some human guidance is needed to get started, but once it’s set up, these processes merely need to be supervised. Apps are designed to do the heavy lifting -- and to alert customers when any kind of action or changes take place. Human intervention can happen, if the customer wants to change a savings goal, for example. Or if a major life event like marriage or a new job occurs, and one’s financial situation changes.

For example, the initial setup of linking a direct deposit to a smart banking app is done manually by the customer. Then the customer can connect to other external accounts, designate bills what need to be paid, set savings goals, and then hands-off the rest to an app.  

  • Budgeting - Once the app knows what monthly bills you have or other recurring expenses, it can calculate how much of your paycheck needs to be allocated to cover those things. Then AI can help you decide where the rest of the money goes and how much.
  • Spending - Using technology, spending can automatically happen without worrying. This is because AI can set aside money that is “free” for discretionary spending once all the expenses are taken care of. AI can also help you see where your money is going by tracking your spending.
  • Savings - Everyone wants to save, but like getting in shape, it can be a struggle. With technology, you can now set savings goals -- a specific amount and timeframe -- and automate the rest. AI can figure out how much of each paycheck needs to go into savings. Smart banking apps can monitor progress toward savings goals, and alert you when you’ve reached milestones.
  • Investing - Roboadvisors have been popular of late. But there are also hybrid models that involve human help and expertise. For example, AI can calculate how much money you have available to invest, while human portfolio managers are selecting the best mix of stocks. When it comes to wealth management, people can choose how much they want to automate.
  • Credit building - Smart banking apps can almost provide insights on the best way to improve your credit score, once they are connected to all your credit cards, loans and such. Provided with the necessary data, AI can reveal patterns that are helping or hindering your credit. This information can point you toward different methods to build better credit. 

Don’t fear the money machines, instead harness their power

Remember when people were afraid to shop online, for fear of compromising their credit cards? Well, times have changed, and online shopping is now the norm. The same is happening with smart banking. AI and machine learning can boost financial literacy, and ultimately help people live financially healthier lives.

By providing a holistic look at your finances, and helping you understand how the various pieces fit together, financial technology can serve as an educational tool. AI can augment and optimize human intelligence — and automate tedious processes — giving you back time (and money) so you can enjoy your life.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.