Using AI for money advice? You might want to read this

In one of my personal finance classes at Harvard, I asked students to use AI to help answer a simple question: would you prefer a car loan at 10 per cent for one year, or 2 per cent for ten years?

Their AI chat tools confidently responded with detailed calculations, claiming “10 per cent for one year is always best”. Only one of my forty students realised it was wrong. “I would prefer the 2 per cent loan because I could always pay it off in one year”, they correctly pointed out.

If 97.5 per cent of my Harvard advanced economics students can be fooled by AI, what hope do the rest of us have? It’s becoming a popular tool, with four in ten Australians using AI for their personal finances. For those aged 18-29, it is eight in ten.

With professional advice costing upwards of $5,000 a year, it is no surprise that Australians are turning to free AI tools to help guide their financial decisions. And while AI can be genuinely useful for managing money, my Harvard undergraduates will now be the first to tell you about its many pitfalls.

But that doesn’t mean you should completely write off AI as a tool to help improve your finances. There are some scenarios where AI can be helpful, and some where it’s best left alone.

How you should use AI

1. Treat AI like a junior analyst, not a financial adviser. As long as you check its work, AI can be useful for delegating time-consuming tasks. Comparing different financial products can be a time-saver (e.g., numerous savings accounts with different ‘bonus interest’ rate rules).

And, given ‘comparison’ websites often favour promoted products, AI can be a less commercially conflicted option. You can also use AI to do simple financial calculations, help keep track of and categorise your spending, and find long-forgotten subscriptions you’re still paying for. Just make sure you supervise it at all times.

2. Ask AI the questions you’re too embarrassed to ask. “Explain how an offset account works, as if I were a ten-year-old” is often an effective prompt in my experience. Or “what is a balance transfer fee, and how do I avoid getting stung by one?”

Our finances can be quite personal, and we may not feel comfortable asking our friends or family questions we think are too simple. In these cases, AI can be an effective judgement-free tutor.

Just as you wouldn’t want an AI attorney to represent you in court, don’t let AI make tax or legal decisions for you.

3. Let it help you read lengthy T&Cs. No matter whether it’s a credit card, insurance product, or superannuation account, we are constantly being asked to read hundreds of pages of terms and conditions.

Unless you’re the 6 per cent of people who read these documents every time, you might consider using AI to summarise the important points, including any ‘catches’ that might be relevant to you.

This, of course, is error-prone and does not replace reading it yourself, but an AI summary is still better than blindly ticking the ‘I accept’ box.

How you shouldn’t use AI

1. Don’t outsource life decisions. The decision to buy a house, change jobs, or sign a prenup is uniquely personal. And while they include a financial element, they are trade-offs between competing priorities that are also informed by personal relationships and values.

Asking AI to make these decisions for you could turn them into an optimisation problem, not a life decision. It may help collate all the pros and cons, but handing these decisions over to AI entirely won’t improve them – it will just hide the judgement call behind a falsely confident computer-generated answer.

2. Don’t let AI dictate your risk tolerance. Economists generally think that people’s risk tolerance becomes more conservative as they get older, given that they have less time to recover from any setbacks.

But there is no ‘correct’ risk tolerance for one’s investments, as it depends on your wealth, financial goals, and personal comfort with market volatility. Worryingly, there is evidence that AI often endorses higher -risk options and can have “higher assertiveness” in these recommendations.

Blindly following this advice could lead to greater investment volatility than many people are comfortable with.

3. Don’t rely on AI for legal or tax advice. Just as you wouldn’t want an AI attorney to represent you in court, don’t let AI make tax or legal decisions for you. AI models are known to ‘hallucinate’, meaning that they confidently make stuff up with no factual basis.

So, for important decisions – where incorrect application of the law could lead to penalties or criminal convictions – don’t trust AI.

Don’t assume confidence equals accuracy, and don’t expect AI to take any accountability. I’m not sure how much luck you’d have suing Google because you broke Australian Tax Office rules on its AI agent’s advice.

AI is a technological marvel, and it is making many financial decisions easier and more accessible than ever before. But, of course, nothing replaces a real certified financial adviser when making important decisions.

At least in 2026, I’d still trust a well-educated human more than an overconfident algorithm.

Max Yong is a Teaching Fellow in Personal Finance at Harvard University. He previously taught personal finance at Melbourne University.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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