Artificial intelligence has disrupted traditional activities in businesses and replaced it with new innovative approaches. Nowadays leaders, senior managers, managers and businesses are embracing AI tools in operational activities that improve quality of work. However, financial decision making is different from regular activities, as it requires a comprehensive approach from different perspectives.
Now the question is, should we use AI to make financial decisions? There is no direct answer to it, because AI can be a tool, not a decision-maker. AI can process enormous amounts of data. For this reason, AI can suggest whatever the situation is based on its existing knowledge and theory. Consequently, all the information is collected from past data. However, the future is highly uncertain. Additionally, the market environment is evolving over time.
Opportunities
Importance of AI in finance
Nowadays, AI is used in different applications to detect fraud, credit assessment, personal budgeting, risk management, forecasting, and identification of regulatory compliance.
Analysis of spending behaviour
AI can be used for evaluating spending. Instead of manually reviewing hundreds of transactions, AI can easily categorise expenses into different parts, which include food, transportation, entertainment, shopping, and utilities.
Credit Assessment
It is used for credit-related activities. It is highly beneficial for lenders to analyse the credit history of users. Apart from that, the income and existing debt of a person can be processed through AI. Additionally, the payment history and employment-related information can be easily processed through a modern AI system.
Annual report analysis
It is a time-consuming process to read an annual report thoroughly. However, AI has made it simpler, as it can easily identify important financial metrics such as revenue, gross profit, net profit, operating costs, taxation, current assets, current liabilities, total assets, total liabilities, debt and equity. Apart from that, AI tools are able to analyse the overall financial performance of businesses, which makes it easier for investors to make decisions.
Compare suitability of different EMI based loans
AI can be used to conduct scenario analysis. When individuals make decisions for certain loans by considering their EMI, it can easily compare the financial effectiveness, which benefits in decision-making.
Risks
There are certain challenges or risks for using AI in financial decision making.
Historical data usage
AI tools are developed based on historical databases and information, which is used to align based on the situation and provide appropriate recommendations. However, historical data is often irrelevant for financial decision making as the future is unpredictable.
AI create the illusion of certainty
In most of the cases, AI systems often communicate in an organised manner, based on previous data. It often creates a simulated situation, which does not exist in real life. In this situation financial decision making can be risky.
Privacy issue
It is a major challenge for most of the users of AI. Nowadays, AI tools are collecting personal information of users to provide more effective information according to their requirements. However, with this data, there is no certainty of data protection in various tools, which can make people's life miserable in future.
Conclusion
From the above analysis, it can be concluded that there are certain challenges in using AI as a final decision-maker for individuals. However, AI tools are more efficient than humans, as they can process enormous amounts of data. So these tools can be used for analysing vast financial reports, performing complex calculations, or processing operational activities. There is a requirement for human intervention for final decision-making.
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