DI25007 Using AI to answer Personal Financial Questions V01 051025

 

When Nicole Ratcliffe first sat down to work out how to pay her tax bill, she was lost. She runs two businesses — one as a sole trader and one as a limited company, which meant that her finances were “a complete mess”.

“It was so complicated, and I didn’t know where to start to sort it all out. I’m in a bit of a transition with the business so it’s become a bit complex,” said Ratcliffe, 44, a freelance infant sleep consultant.

“I asked an accountant how much it would cost and they said £1,000, but I only made about £7,000 last year so it would have been about 15 per cent of the money coming in. I don’t have that money to spend on an accountant.”

In the end Ratcliffe turned to artificial intelligence (AI) — joining the millions who have used AI tools such as ChatGPT for help with their finances. But how can you seek tailored financial advice from a computer, and what are the risks? Ratcliffe had already asked ChatGPT about blood test results and requested advice on what she should ask her doctor, as well as using it to look for cheap days out near where she lives in Manchester.

She said: “I didn’t have the time to trawl through Google and find contradictory bits of information that wasn’t relevant to me. So I laid out my situation and asked ChatGPT to explain what I could declare as a sole trader versus a limited company and what tax I might pay.”

ChatGPT explained how much she could pay herself each month without hitting the income tax and national insurance threshold, as well as why she could end up with a corporation tax bill.

Ratcliffe had hit a wall with HM Revenue & Customs when she couldn’t fill out certain forms online. She copied and pasted the message she was getting from HMRC’s website into ChatGPT and it said she needed an extra reference number.

“I was getting really stressed because I couldn’t work out why it wasn’t working.
ChatGPT told me that it was because I didn’t have the relevant code. Now I’m just waiting for the tax office to send me that number,” she said.

According to Finder, a comparison site, 40 per cent of people have used generative AI tools, such as ChatGPT, Gemini or Copilot, for financial advice. A further 25 per cent were considering it.

The tax filing service Taxfix found that more than half of those required to fill out self-assessment forms were planning to use AI for help this year, saying it was faster, more convenient and cheaper.

As you might expect, it was more common among younger people. Some 65 per cent of those aged 18 to 28 had used AI for money help, compared with 28 per cent of those aged 45 to 60 and just 14 per cent of baby boomers (61 to 79).

Budgeting help was the most popular reason for turning to AI, with 19 per cent of users saying that a personal budget had been their main goal. Other common requests were for advice on starting or managing a side hustle, improving a credit score, savings and investment tips.

Advisers make me anxious. When I speak to ChatGPT, I know it isn’t going to judge me 

“AI has been a brilliant assistant in removing much of the laborious work from tax returns and finance research,” said Daniel Roper from Taxfix. “But while I’d encourage everyone to lean on AI, remember that it isn’t infallible.”

HOW TO AVOID AN AI DISASTER
In theory AI chatbots can help you with any aspect of your personal finances. The most popular tool is ChatGPT, which is owned by the research company OpenAI.  It is free to use, but you can buy “Plus” or “Pro” versions for £20 or £200 a month that offer more features. Other AI options include Gemini and Copilot.

You start the conversation by asking a question — a “prompt” in AI lingo — and the bot will respond, based on everything it has “read” during its “training”. For extra or more recent information, the chatbot searches the internet.

“AI can take the legwork out of day-today money management. You should never share sensitive details like account numbers, but you can provide summaries of spending and income and it can analyse patterns and build budgets around them,” said Alex Whitelaw, an AI consultant. “This could be as simple as creating a monthly budget, or as detailed as mapping out your year with holidays, birthdays and larger expenses built in.”

Experts in using AI chatbots say that the more you put in, the more you get out — the more detail and context you provide, the better equipped the bot is to give you a useful response.

Edward Morris, who runs Enigmatica, an AI consultancy, suggests thinking about four things when asking ChatGPT something: role, context, tasks and framework. “For example, you could say, ‘You are my personal money mentor. I am 29, earning £38,000 a year with £6,000 in student debt, £1,500 in savings and I want to buy a house in five years. Analyse my situation and give me three steps to achieving this. Show me what happens if I save £300 a month compared with £500.’”

THE PROS AND THE PITFALLS
There are plenty of positives to using AI as an adviser. It is constantly available, so it can help you when you need to make a decision or when it suits you, rather than having to make an appointment, and it is free to use.

It can also help to build the confidence of those who would never have traditionally sought any form of financial advice. Morris said: “Far too many people avoid financial advisers because they feel embarrassed about their circumstances.

There’s no judgment with ChatGPT — no smarmy comment or anything that makes you feel bad.”

This is a big reason that Tina Chummun likes using ChatGPT as a sounding board. She started to use it when she was out of work and needed breathing room on her mortgage.

She was struggling to fully understand a letter from her lender, so uploaded it to ChatGPT, which explained it to her in simple terms.

Then she told the chatbot how much she could afford to pay each month and asked for help drafting a letter to the bank. It explained to her the impact of paying less — how much longer it might take to pay off the debt, and how much more she might pay in interest.

She said: “I’ve had to speak to a lot of people about my finances, and often my anxiety comes up. But when I speak to ChatGPT I know it’s not going to judge me. It takes the emotion out of it. When you can’t see the woods for the trees it’s helpful as it’s a machine giving you an output rather than a human being where you can see and sense their reaction.”

Chummun, 49, who runs a psychotherapy business, has also started to ask ChatGPT what she can do to improve her financial security. She explained that she wanted to build wealth, but wasn’t a huge risk-taker. It gave her eight options, from investment funds to cryptocurrencies, but told her to start by building up some emergency savings and debt management — which is exactly what a financial adviser would suggest too.

But there is plenty to be concerned about, not least the fact that AI can simply get stuff wrong. If a chatbot doesn’t know the answer to something, it can “hallucinate” and fill in the gaps incorrectly, or base its response on old information.

ChatGPT is only trained with information up to June 2024, for instance, so it has to search the internet for anything more recent. A key change in tax policy or interest rates, for example, may not be included in its answers.

There is also the possibility that you could lose money by following its advice.

Mistakes in tax returns often come with penalties of at least £100 and you will not be protected if AI advises you to invest in something that ultimately fails.

Victoria Crampton from the recruitment company Maxwell Richards said: “Treat AI as a guide, not a regulated adviser. Always fact-check numbers, tax rules and product details. Use it to prepare for conversations with professionals, rather than to replace them.”

Charlotte Wilson from Check Point Software, a cybersecurity firm, said that using AI for financial advice meant that the “sheer amount” of sensitive data being concentrated in one place made it a prime target for cybercriminals.

And AI lacks the nuance that a financial adviser can provide, and may not ask the leading questions they would know to ask. For example, it could suggest a budgeting strategy that seems suitable but does not consider future costs or life events, or it could assume you had children when you didn’t.

Morris said: “AI explains things so confidently, so there is a risk that users take it as gospel, which is dangerous if left unchecked. You should always be a little bit critical, and approach ChatGPT and other bots with a healthy cynicism.”