AI financial advice is a thing – but use it with caution!

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Artificial Intelligence, or AI, refers to systems that can perform tasks that would normally require human intelligence, such as perception, reasoning, learning and problem-solving. 

One of the most famous examples of AI in action is ChatGPT. You might have heard of it – it’s a tool you can use from your web browser to answer questions, write essays and articles, and summarise text. It's free and easy to use, and it has been trained on vast amounts of data, such as books, web articles and social media. It’s incredibly powerful, but how does it work for financial advice?

To test it, we asked the chat bot to work out the payback period on an investment in a home battery and solar backup system. The solar-generated power would offset what the user would spend on electricity each month, resulting in a monthly saving. With the cost of electricity rising each year, we assumed that this saving would also grow each year. To simplify things, we ignored potential maintenance costs, increases in electricity consumption, and tax. 

We gave ChatGPT the following scenario:

Calculate the payback period (in years and months) for an investment into a solar and battery backup system at my home:

Upfront cost: R126,000
Equipment has a warranty of 10 years
Estimated electricity savings per month: R800
Estimated savings above increases every 12 months, by 10% per annum

It showed some calculations and gave this answer:

Therefore, the payback period for this investment in a solar and battery backup system is approximately 13 years and 2 months. 

Impressive, except that the answer is wrong! If we do the calculations in a spreadsheet, the correct answer is about 8 years and 10 months. 

Had a human advisor been asked this question, they might have highlighted that the time value of money should also be considered. In other words, if the savings generated each month were parked in a savings account, it would grow with interest and further reduce the payback period. 

So, we gave ChatGPT an additional instruction: 

The estimated savings are paid into a bank account at the end of each month. This account earns an interest rate of 6% NACM and interest is paid monthly in arrears. Consider the interest earned in the payback calculation.

Therefore, the payback period is approximately 12 years and 5 months. 

This answer, too, was far from correct! Our spreadsheet suggests that it will take 7 years and 5 months. 

All things considered, AI still seems unreliable in this space. Be careful when using tools like ChatGPT – especially when making life-changing financial decisions!

On the bright side of this experiment, however, our interactions with the bot fed more data into the system and helped to train the AI by pointing out its mistakes. Over time and with the right influence, AI advice will most probably become more accurate and useful, as long as good old human intelligence remains part of the mix.