Can AI Help You Manage Your Money? A Deep Dive into ChatGPT’s Advice

Artificial intelligence (AI) is revolutionizing the way we engage with various aspects of our lives, including personal finance. But can a chatbot like ChatGPT truly assist you in managing your money? We tested its capabilities by asking the AI several common personal finance questions. We then consulted human experts to gauge the accuracy and effectiveness of its responses.

Pensions: Planning for Your Golden Years

The Scenario

Question: I’m 35 and want a comfortable retirement. I earn about £35,000 annually and have a workplace pension with £20,000 saved. My employer contributes 4%. I’d like to retire at 60. Do I need to save more?

ChatGPT’s Insights

ChatGPT mentioned that a comfortable single-person retirement requires roughly £43,000 per year, while a moderate lifestyle would need around £31,000. To sustain yourself in retirement for 20-30 years, you’d need a pension pot of approximately £793,000 for comfort or £478,000 for a moderate lifestyle. Considering your state pension kicks in at 67, you’d face a "pre-state pension gap" exceeding £150,000, necessitating substantial additional savings.

Expert Opinions

Steve Webb, a partner at pension consultants LCP, highlighted some inaccuracies regarding the state pension age and outlined that you might require £635,000 today to maintain a comfortable income. He affirmed the AI’s point about needing higher savings, suggesting 12% to 15% of your pay annually, or 11% after your employer’s contribution. Effective tax relief can also lighten the burden.

Key Takeaway: Understanding the assumptions behind AI-generated advice is crucial and discussing nuances with a human advisor can provide more tailored insights.

Mortgages: Navigating Your Loan Options

The Scenario

Question: We have 20 years left on our mortgage, and our current rate is expiring soon. What are the best rates? Should we choose a two-year or five-year fix, or wait for rates to drop?

ChatGPT’s Response

The AI provided current market rates, including the cheapest two-year fixes at around 3.7% to 3.8% and five-year fixes starting from 3.8% to 3.9%. With 50% equity, you should qualify for competitive rates. However, it also warned that failure to act would result in reverting to a much higher standard variable rate (SVR), potentially around 7-8%.

Expert Opinions

David Hollingworth from L&C Mortgages cautioned that AI responses are often too generalized. While ChatGPT offered some useful starting points, actual mortgage advice requires a deep understanding of individual situations, including potential fees and the long-term implications of each mortgage option.

Key Takeaway: While AI can help identify rates, personal circumstances are essential in making informed decisions.

Funding University: Preparing for Your Children’s Future

The Scenario

Question: I have two children (12 and 15) planning to attend university. How should I start saving for their education?

ChatGPT’s Insights

ChatGPT explained government loans available for tuition and living costs, as well as savings options like Junior ISAs, allowing up to £9,000 annually for each child. It emphasized the benefits of starting savings now.

Expert Opinions

Charlene Young, a pensions expert, acknowledged that while ChatGPT effectively highlighted potential costs and loans, it failed to incorporate factors like existing financial health or emphasize the importance of involving children in financial discussions.

Key Takeaway: Preparing for university funding requires a holistic approach encompassing all aspects of your finances.

Essential Insurance: Safeguarding Your Family

The Scenario

Question: As a new homeowner expecting a child, what types of insurance do we need?

ChatGPT’s Response

The AI provided a comprehensive list, covering essential insurances like life insurance, income protection, and travel insurance, offering general cost estimates.

Expert Opinions

Graeme Trudgill, CEO of the British Insurance Brokers’ Association, remarked on the generic nature of the AI’s suggestions, emphasizing the need for personalized advice that considers the intricacies of each policy type.

Key Takeaway: While ChatGPT can give you a good overview, a qualified advisor can better navigate your unique insurance needs.

The Verdict: Is AI Enough?

While ChatGPT offers a solid starting point for financial inquiries, experts agree the responses often miss critical details and can include inaccuracies. These answers can inform your initial understanding, but when it comes to significant financial decisions, consulting a human advisor is paramount.

Final Advice: Maximizing Your Engagement with AI

• Provide detailed information when asking questions to receive more tailored insights.
• Check privacy settings to ensure you’re comfortable with data handling.
• Use AI as a jumping-off point for further research rather than a definitive guide.
• Engage with terms you don’t understand; ask for insights into complex financial jargon.

By employing these strategies, you can complement AI assistance with thorough research and personalized advice for smarter financial management.