The role of artificial intelligence in personal finance

BY OLUBUSAYO MORENIKEJI ADEWUMI

Artificial Intelligence (AI) is no longer a futuristic concept confined to science fiction—it’s a reality reshaping industries, including personal finance.

From budgeting apps to robo-advisors, AI is revolutionising how individuals manage their money, make investment decisions, and plan for the future.

In 2024, the global AI in finance market was valued at $44.08 billion and is projected to grow at a compound annual growth rate (CAGR) of 23.17 percent through 2030. But what does this mean for the average person? How is AI making personal finance more accessible, efficient, and personalised?

WHAT IS AI IN PERSONAL FINANCE?

At its core, AI in personal finance refers to the use of machine learning algorithms, natural language processing, and data analytics to automate and enhance financial decision-making. These technologies power tools like budgeting apps, investment platforms, and credit scoring systems, enabling users to manage their finances with greater precision and ease.

For example, AI-driven apps like Mint and YNAB (you need a budget) analyse spending patterns, categorise expenses, and provide real-time insights to help users stay on track. Meanwhile, robo-advisors like Betterment and Wealthfront use AI to create personalised investment portfolios based on an individual’s risk tolerance, goals, and time horizon.

The result? A more democratised financial landscape where individuals, regardless of their financial literacy, can access tools that were once reserved for the wealthy or financially savvy.

THE GROWTH OF AI IN PERSONAL FINANCE

The adoption of AI in personal finance has skyrocketed in recent years, driven by advancements in technology and increasing consumer demand for smarter financial tools. In 2023, over 60 percent of U.S. adults reported using at least one AI-powered financial tool, up from just 35 percent in 2020.

Robo-advisors, in particular, have seen explosive growth. Assets under management (AUM) by robo-advisors globally reached $1.5 trillion in 2023, a 25% increase from the previous year. This growth is fueled by younger generations, with 72% of millennials expressing a preference for digital financial tools over traditional advisors.

AI is also transforming credit scoring and lending. Companies like Upstart and ZestFinance use AI to analyze non-traditional data points—such as education, employment history, and even social media activity—to assess creditworthiness. This approach has expanded access to credit for underserved populations, with AI-driven lenders approving 27% more loans to individuals with thin credit files compared to traditional models.

HOW AI IMPACTS EVERYDAY FINANCIAL DECISIONS

AI’s influence on personal finance extends far beyond budgeting and investing. It’s reshaping how people save, spend, and plan for the future.

SMARTER BUDGETING AND SPENDING 

AI-powered apps like Mint and PocketGuard provide users with real-time insights into their spending habits. By categorising transactions and identifying trends, these tools help users create realistic budgets and avoid overspending. For instance, if an app detects a spike in dining-out expenses, it can send an alert and suggest ways to cut back.

PERSONALISED INVESTMENT STRATEGIES

Robo-advisors like Betterment and Wealthfront use AI to create customised investment portfolios. These platforms consider factors like age, income, and risk tolerance to recommend a mix of stocks, bonds, and ETFs. In 2023, robo-advisors outperformed human advisors in 67 percent of cases, thanks to their ability to process vast amounts of data and adjust portfolios in real-time.

FRAUD DETECTION AND SECURITY

AI is also enhancing financial security. Banks and credit card companies use AI algorithms to detect unusual transactions and flag potential fraud. For example, Mastercard’s AI-powered system analyzes billions of transactions daily, reducing fraud losses by 50% since its implementation.

FINANCIAL PLANNING AND FORECASTING 

AI tools like Personal Capital and Quicken offer advanced financial planning features, including retirement forecasting and debt management. By analyzing historical data and market trends, these tools provide users with actionable insights to achieve their financial goals.

CHALLENGES AND RISKS

While AI offers numerous benefits, it’s not without its challenges. Understanding these risks is crucial for users and policymakers alike.

DATA PRIVACY AND CONCERNS

AI-powered financial tools rely on vast amounts of personal data, raising concerns about privacy and security. In 2023, a survey by PwC found that 68% of consumers were worried about how their financial data was being used by AI systems.

ALGORITHMIC BIAS

AI algorithms are only as good as the data they’re trained on. If the data contains biases, the algorithms may perpetuate them. For example, a 2022 study by the National Bureau of Economic Research found that AI-driven credit scoring models were more likely to deny loans to minority applicants, even when their creditworthiness was comparable to other groups.

OVER-RELIANCE ON TECHNOLOGY

While AI can simplify financial decision-making, it may also lead to over-reliance on technology. Users risk becoming disconnected from their finances, relying solely on algorithms without understanding the underlying principles.

WHAT’S NEXT FOR AI IN PERSONAL FINANCE?

The future of AI in personal finance is bright, with several trends poised to shape the industry.

Hyper-Personalisation: AI will enable even more tailored financial advice, considering factors like life events, behavioural patterns, and real-time market conditions.

Voice-activated assistants: Tools like Amazon’s Alexa and Google Assistant are already integrating financial capabilities, allowing users to check balances, pay bills, and track spending using voice commands.

Blockchain integration: The combination of AI and blockchain technology will enhance transparency and security in financial transactions.

Regulatory frameworks: Governments and regulatory bodies are working to establish guidelines for the ethical use of AI in finance, ensuring fairness and accountability.

HOW THE AVERAGE CITIZEN CAN LEVERAGE AI

Getting started with AI-powered financial tools is easier than ever. Here’s how anyone can take advantage of this technology.

Start small: Use budgeting apps like Mint or YNAB to track spending and create a budget.

Explore robo-advisors: Platforms like Betterment and Wealthfront offer low-cost investment options with minimal effort.

Stay informed: Keep up with the latest developments in AI and finance to make informed decisions.

Protect your data: Be mindful of the information you share with AI tools and choose platforms with strong security measures.

AI is transforming personal finance, making it more accessible, efficient, and personalised than ever before. For the average citizen, this means greater control over their financial future and the tools to achieve their goals.

However, navigating this evolving landscape requires awareness, education, and a commitment to using technology responsibly.

As AI continues to advance, its potential to democratize finance and empower individuals is limitless. The question is no longer whether AI will play a role in personal finance—it’s how we can harness its power to create a brighter financial future for all.

Olubusayo Morenikeji Adewumi, FMVA, is a finance professional and entrepreneur with a track record in financial management and strategic planning. She is currently an MBA candidate at the Kellogg School of Management at Northwestern University, USA