How artificial intelligence can help with your finances
Along with autonomous cars, virtual reality, and drones, artificial intelligence (AI) has been one of the key areas of tech that is generating huge amounts of excitement. And rightly so.
From the much hyped triumphs of Google’s DeepMind, to those very handy recommendations on Skype and Netflix, us regular human folk are only seeing the beginnings of what AI holds in store in the next few years.
AI is also taking huge strides in helping people manage their finances, which is particularly important when looking at the state of savings in the UK.
The figures are pretty grim.
This year the savings ratio, which is the amount a household saves as a proportion of its income, reached its lowest level since records began.
During the mid-nineties the figure hovered around the 15 per cent mark, but for the first quarter of this year, it stood at just 1.7 per cent.
If you can’t face more scary financial figures, look away now. There are a staggering 16m people in the UK with less than £100 in savings. And by 2050, it’s estimated that our savings gap (the difference between what we will have at retirement versus what we need) could be as high as £350bn. Ouch.
Tackling the savings struggle
There’s a multitude of factors at play here. More recently, Brexit has really slammed the breaks on the economy’s growth, interest rates are still hovering at record lows, while spending in recent years has got easier and easier.
We now live in a world where you can order pretty much anything with just a few clicks, and before too long these will be delivered straight to your door by one of Jeff Bezos’ army of Amazon drones.
Whether it’s the pressures of social media, the realisation that you’ll be lucky to ever afford more than a cardboard box in London, or just the temptations of avocado on toast, millennials in particular are struggling to save.
So let’s explore how AI can help you with your finances.
Making saving less dreary
Advances in technology can make the boring task of savings a little less tedious. Using a chatbot – which is a computer programme that can have a conversation with humans – can help encourage people to engage with their finances.
The magic lies in the algorithm, which to put it simply, looks at your historic transactions and builds an accurate picture of your usual spending and income.
Using this picture, you can squirrel away small amounts of money that the programme estimates you won’t need by the end of the month.
The data can be refreshed and recalculated daily to make sure you can adjust to any new circumstances that might arise.
Detecting savings opportunities
AI is applied to learn your transactional patterns. Basically AI develops an understanding of users’ regular spending patterns, and is able to adapt quickly and learn from any changes.
Most people’s spending usually follows a similar pattern month-to-month, but when changes happen the programme can adapt.
For example, if you begin cycling to work daily, then an AI system can notice that TFL charges are no longer a regular occurrence and will increase your savings to account for this.
AI can also help you save money on your bills. For example, a users will be being notified if they are overpaying on their utilities. They can then be given the option to switch to a cheaper, greener alternative, which could save them hundreds of pounds a year.
Helping with budgeting
Making people aware of their finances is the first step in helping them gain control.
While AI-powered programmes will usually work in the background, it can give users a daily update on their bank account balance. Users can then simply click into this to see how their savings have developed daily, or view their week-on-week spend.
By subtly providing a way to keep track of their balances, users can quickly develop a sense of their spending, and are able to manage their finances more effectively as a result.
It’s also worth mentioning that users can set goals to save for. This helps them visualise and keep track of their savings progress and in turn makes budgeting simple and effective.
In a similar way to understanding spending habits, AI can be applied to understand an individual’s investing history and preferences.
It can match these preferences with investment products to offer a tailored investment portfolio which is unique to the user’s financial situation and risk appetite.
Artificial intelligence should also be able to help you decide when to buy and sell assets, preventing your emotions from influencing your investment decisions.
Predicting future spending
By building an understanding of a user’s transactional history, AI can be used to understand the relationship between transactions and other external factors, such as the time of year or month, purchases made when an account balance reaches a certain level, or when purchases happen in reaction to others.
By using this, and constantly analysing, AI is able to build a robust model of how users may act under certain future conditions.
Also, it is very easy to pick up on regular purchases and brand loyalty to help predict when and for what the user is willing to try new brands and products.
At Plum, our users save on average around £150 a month, and in many instances, without even noticing.
This is just the beginning.
Through AI, users can have their very own financial butler – an assistant that saves without you noticing, that monitors your bills and spending, and makes sure you get the best deal. All of this without you even having to lift a finger.