ChatGPT is a powerful large language model (LLM), a type of artificial intelligence (AI) that provides written responses to your inquiries. But can it replace a human financial advisor?
Using ChatGPT might never be quite the same as working with a real person, but this AI model has its advantages. For example, it can be easily accessible and cost-effective. It also has its disadvantages, such as its occasional inaccurate answer, which might have a significant impact when it comes to personal finance.
We asked ChatGPT to help us with various financial topics to explore its ability to provide useful answers.
- ChatGPT is a large language model (LLM) capable of answering questions on many topics, including personal finance, banking, savings, and more.
- ChatGPT provides a low-cost way to get answers to simple financial questions at any time of the day.
- ChatGPT can sometimes fabricate responses and provide inaccurate answers while sounding confident about them, in what came to be known as AI hallucination.
- Many human financial advisors can provide empathetic and intelligent advice, particularly in complex scenarios like tax planning and estate management.
Can ChatGPT act as a financial advisor?
Working on your financial planning with ChatGPT can differ greatly from working with a traditional financial advisor. A conversation with ChatGPT can help you get answers to many simple questions you may have. However, you might notice that the deeper you go into a specific topic, the less capable this LLM model is of providing satisfying answers.
We used ChatGPT to get answers to various financial questions to determine the AI chatbot’s ability to help us learn, plan, and execute personal finance strategies.
Can ChatGPT help me understand finances?
We asked ChatGPT to explain various financial topics. We used the free and publicly available version GPT-3.5 as well as the subscription-based GPT-4. Both versions were able to provide straightforward answers to simple questions.
For example, some of the areas where ChatGPT stated that it can provide information include:
- Personal finances: ChatGPT stated that it can answer questions and provide information on budgeting, savings, managing debt, credit scores, and retirement planning.
- Investing: The AI tool said it can explain concepts related to stock markets, bonds, mutual funds, exchange-traded funds (ETFs), real estate investing, and risk management.
- Taxation: ChatGPT also stated that it can use its AI technology and algorithms to provide an overview of different types of taxes, tax planning strategies, and general tax considerations.
ChatGPT closed by saying, “Remember, though, I can't give specific advice tailored to your personal financial situation. You should consult with a qualified financial planner for advice that's personalized to your individual circumstances.”
We explored its answers in some of the categories it listed, and it provided answers that explained the basics of each topic. While the responses were lengthy, they were a bit generic. This is, in part, due to the fact that we didn’t provide it with exact pictures of financial situations we’d like it to analyze or help with.
TipYou should see improved results by providing detailed context to the ChatGPT. However, one limitation you might not overcome, even with added context, is its inability to fact-check the information it provides.
Can ChatGPT assist with budgeting?
Our next step was to dive deeper into some of the main personal finance topics often on the minds of Americans. We discussed budgeting with ChatGPT, and it offered several areas where it can provide guidance:
- Income tracking: ChatGPT explained that the first step to creating a budget is to understand how much money we’re bringing in. This includes salary as well as additional income sources, such as bonuses, investment income, and more. The AI tool gave us steps for tracking our income, but it also recommended using budgeting apps to automate the process.
- Expense tracking: The AI chatbot added that we should identify and categorize our expenses. This may include rent or mortgage, utilities, groceries, transportation, healthcare, entertainment, and any other categories. It mentioned that some people find it helpful to distinguish between fixed expenses (like rent) and variable expenses (like dining out).
- Set Goals: ChatGPT highlighted the importance of setting financial goals. These could be short term, like saving for a vacation, or long term, like saving for retirement or a down payment on a house.
ChatGPT usabilityThe AI tool indicated it was also able to build a simple budgeting table that we could copy to an Excel sheet.
ChatGPT’s budgeting tips were helpful. It was simple and easy to converse with and expand on the areas where we needed more information. Overall, it did a great job of breaking down how budgeting works.
Can ChatGPT help with debt?
ChatGPT also provided steps for managing debt. These included:
- Understanding debt: ChatGPT explained that the first step is to make a list of all existing debts. For each debt, note the total amount you owe, the minimum monthly payment, the interest rate, and the due date.
- Create a budget: The AI model added that creating a budget is a crucial step in financial management. It aids in understanding how much money you're earning, how much you're spending, and how much you can afford to put toward debt repayment.
- Prioritize your debts: ChatGPT stated that it generally makes sense to prioritize paying off high-interest debts first because they cost you the most money over time. This is known as the avalanche method. Alternatively, the snowball method involves paying off the smallest debts first to build momentum, which can provide a psychological boost.
While these tips are helpful, they might need more details to help you fully grasp how they would work in practice. Fortunately, ChatGPT was able to expand on the information provided after asking it to tell us more about how interest rates work, how to use the avalanche method, and more.
When we gave ChatGPT more context, it was able to build the following table containing a debt repayment plan for a $10,000 credit card debt that has a 15% APR. It recommended a monthly payment of $650 and accurately calculated that this debt would be paid over 18 months.
Can ChatGPT build a savings plan?
ChatGPT was also able to provide general steps for building a savings plan. This included:
- Establishing your goals: The AI model asked if the savings goal is a vacation, an emergency fund, a home, retirement, or something else.
- Determining your timeline: ChatGPT stated that each goal we set will have a different timeline. A down payment for a house might be a medium-term savings goal, such as two to five years, while saving for retirement will be a long-term goal stretching over 20 or 30 years.
- Deciding on a monthly savings amount: Based on our goals and timeline, ChatGPT explained that we should decide how much you need to save each month to reach the goal. This can be a fixed sum of money or a percentage of the income made.
- Creating a budget: ChatGPT added that creating and using a budget can help see where our money is going and identify areas where we can cut back to free up more money for your savings.
When we added more context by explaining that we’d like to save $20,000 for a down payment on a house, the AI tool provided the following savings plan that considered our monthly income and expenses.
Can ChatGPT give investment advice?
Unsurprisingly, ChatGPT stated that it can’t provide specific investment advice or recommendations tailored to our situation. Investing can be an unpredictable and difficult field to navigate, making it a better fit for a financial advisory service operated by trained humans in the financial services industry.
However, ChatGPT listed the following investing principles to provide education on the basics of this field:
- Diversification: Diversifying your investments can reduce risk. This means spreading your investments across a variety of asset classes, such as stocks, bonds, and real estate, and within those classes, investing in a range of sectors and companies.
- Risk tolerance: Another step in learning how to invest money is figuring out your risk tolerance, a personal measure of the degree of uncertainty you are willing to handle in regard to negative changes to your investments. It is important to understand your own risk tolerance when deciding on your investment strategy.
- Invest for the long term: The stock market can be unpredictable in the short term, but historically, it has tended to increase in value over the long term. Many successful investors take a long-term perspective and do not panic over temporary market downturns.
- Use tax-advantaged accounts: Make full use of tax-advantaged investment accounts like 401(k)s or individual retirement accounts (IRAs). These accounts come with tax benefits that can significantly enhance your investment returns over time.
ChatGPT also added that investing always involves the risk of a loss of principle and that you should do your own research before you invest.
Advantages of using ChatGPT for personal finance
ChatGPT’s low cost and accessibility are among the benefits of using it for financial guidance. While it can’t fully replace your financial advisor, it can provide much of the initial information you might need to get a grasp of financial topics.
ChatGPT can be cost-effective
Cost is one of the starkest differences between ChatGPT and a financial advisor. While accessing the more advanced GPT-4 model currently requires a Plus subscription that costs $20 per month, the older yet capable GPT-3.5 model is free to use.
On the other hand, financial advisors might charge higher fees, depending on your needs. Fee-only financial advisors typically charge a fixed rate, while other financial advisors may charge a percentage-based fee.
ChatGPT can easily be accessed
The ease of accessing ChatGPT is another point in its favor. It’s available 24/7 in the U.S. on any device with an internet connection.
On the other hand, meeting with a financial advisor isn’t something you can do whenever you feel like it. You can typically only do so during business hours and by appointment. Of course, financial advisors are real people with lives, families, and other responsibilities, so they can’t be available all the time like ChatGPT.
ChatGPT can learn from context
Although ChatGPT recommends meeting with a financial advisor, that doesn’t mean it can’t provide some level of personalized recommendations. For example, we plugged each of the following scenarios into ChatGPT:
- Someone who makes $70,000 per year with a debt of $30,000
- Someone who makes $40,000 per year with a debt of $40,000
The second person is in a more challenging position, and ChatGPT acknowledged that by saying, “Paying off $40,000 of debt with an annual income of $40,000 can be challenging, but it's certainly possible with careful planning and dedication.”
It also recommended steps it didn’t recommend to the first person. First, it suggested increasing their income with a higher-paying job, a side gig, or freelancing. Then, it recommended finding a financial counselor to help the person create a personalized debt repayment plan.
Drawbacks of ChatGPT as a financial advisor
Despite its advantages, ChatGPT still has several cons that keep it from replacing financial advisors.
ChatGPT doesn’t offer a human element
Since ChatGPT is a generative AI model, it doesn’t have the human touch you get with a financial advisor. Its responses can seem cold at times, and you might find yourself wishing you had a real person who understands what you are going through.
You can explore how to find a financial advisor in our SmartAsset review.
ChatGPT can also lack emotional intelligence and empathy in financial decision making. While personal finance is a matter of dollars and cents, emotions can run high around money. However, ChatGPT may fail to understand this, which can sometimes make its responses seem insensitive.
ChatGPT can provide wrong information
ChatGPT is impressive, but it isn’t perfect. It can sometimes provide incorrect information, and there are several reasons for that. One of the biggest problems is that its answers are limited to what is available in its training data. If there are gaps in its data, it can sometimes make things up in an attempt to provide a response.
The other problem is that ChatGPT doesn’t have real-time information available. As of August 2023, ChatGPT’s data has a cutoff of September 2021. After that date, ChatGPT has no knowledge of real-world events. Therefore, asking it about anything that happened after September 2021 may result in an incorrect answer.
ChatGPT may not process complex financial scenarios
As capable as ChatGPT is, it may struggle to provide good responses when presented with complex financial scenarios.
For example, issues like tax and estate planning or advanced investment tactics may lead ChatGPT to provide inaccurate answers or offer no answer at all. Financial advisors are capable of answering complex questions, while ChatGPT is less capable in these areas.
How does ChatGPT compare to traditional financial advisors?
|ChatGPT||Traditional financial advisor|
ChatGPT and traditional financial advisors each have pros and cons. The main benefits of ChatGPT come down to its 24/7 availability, ease of generating quick answers to your questions, and its low cost. However, ChatGPT can sometimes fabricate responses when it has a gap in knowledge, and as of August 2023, its training data only stretches to September 2021.
RecommendationDouble-check the answers it provides to make sure the information is accurate.
If you want personalized recommendations with a human touch, your best bet would be a human financial advisor. They’re better at providing guidance in complex areas like taxes, estate planning, and investing. They can also help you create a personalized plan with actionable steps.
Lastly, financial advisors have the emotional intelligence and empathy that ChatGPT often lacks. However, their services can be expensive for those with limited financial means.
Ultimately, we think that ChatGPT can’t fully replace your financial advisor. But you can still use ChatGPT to understand various financial topics and get some degree of help with different personal finance tasks.
FAQ about ChatGPT
How secure is my financial information with ChatGPT?
OpenAI states that it has implemented strict privacy policies and guidelines to handle user data, so providing general information about your finances could be safe. However, you should always refrain from entering information like passwords, Social Security numbers (SSNs), or taxpayer identification numbers (TINs).
Can ChatGPT help me with tax planning and filing?
ChatGPT can provide general information and guidance on tax planning and filing, including explanations of various tax concepts and strategies. However, it might not perform as well when providing personalized tax advice or completing tax forms on your behalf.
Is paying for ChatGPT worth it?
Whether paying for ChatGPT is worth it depends on your finances and what you hope to get from it. The GPT-3.5 model is powerful and capable of handling many inquiries, and it’s free to use. However, if you need a chatbot that is more capable of creativity or advanced reasoning, it might be worth paying the $20-per-month subscription fee to get access to the GPT-4 model.
ChatGPT’s financial advice: bottom line
ChatGPT can provide a large amount of information any time of the day, and you can use it for free when you stick to the GPT3.5 model.
ChatGPT can learn from the context you provide, and you can quickly get answers to various simple questions. However, its answers may not offer much help with complex tax or estate planning questions.
A financial advisor can help in these areas — although their services typically come with a fee. Learn how to pick a financial advisor and some of the common mistakes to avoid.