Muse? Newsletter #19 - Can AI Enable Financial Wellbeing?
AI Muse? Grenoble
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This April edition of the MUSE? newsletter weighs the potential of AI’s impact on Financial Well Being.?
In this exploration of Financial Well Being, AI Muse? Grenoble is pleased to welcome Professor Karen Elliott Fintech Chair at the University of Birmingham and author of the book?How to Design and Develop a Business Research Project: Demystifying Academic Research for Business Professionals.
Professor Elliot’s commentary can be found following this introduction.?
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In the realm of banking and finance, organizations of all sizes have harnessed the power of artificial intelligence to enhance operational efficiency, gain insights into customer behavior, and pioneer innovative financial products. Yet, less recognized is the opportunity for individuals to utilize AI to bolster their own financial decision-making capabilities, paving the way towards greater financial independence and a more fulfilling work/life balance. In our?BAI Summer School on AI in Banking and Finance?this July, we will also challenge our participants to explore AI’s potential impact on financial well-being.??
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Financial well-being?extends beyond the ability to pay one’s bills - the concept?encompasses having the resources to pursue opportunities, handle unexpected expenses, and plan for the future. Achieving financial well-being is a foundational goal providing a sense of security and empowerment, allowing individuals to focus on personal growth, invest in their health and relationships, and contribute positively to their communities. More importantly, it is a cornerstone of overall well-being, enabling individuals with a greater degree of?freedom to pursue their passions and aspirations.
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Artificial Intelligence holds considerable promise in bolstering financial well-being through its capacity to enhance financial literacy, deliver customized solutions, and streamline decision-making processes.?AI can play a role in enhancing financial literacy, providing personalized financial advice, and optimizing financial decisions. AI is already transforming the financial ecosystem by weakening traditional institutional bonds and opening doors to new operating models. AI-driven solutions offered through open banking solutions create the opportunity to enrich employee financial wellness by offering personalized support, facilitating informed decision-making, and fortifying financial futures.
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Financial well-being provides measurable business value for banking and financial institutions.?This proactive approach not only strengthens customer intimacy but also mitigates the risk of defaults and delinquencies, contributing to overall financial stability and inclusion. AI can potentially play a pivotal role in ensuring fair and inclusive credit decisions by providing insights into decision-making processes and uncovering the factors driving lending outcomes. By transparently disclosing the rationale behind credit assessments, banks can choose to mitigate biases and discrimination inherent in traditional lending practices, thereby expanding access to credit for underserved populations.?
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Artificial Intelligence models?have immense potential to?foster financial well-being and inclusion by enhancing transparency, accountability, and personalization in banking and financial?services.?For instance, financial institutions can leverage machine learning and AI to analyze vast amounts of data and predict cash flows for individuals facing financial difficulties. By identifying patterns indicative of probable hardships, both traditional and the neo-banks can proactively reach out to offer tailored support and resources, such as financial counseling or flexible repayment plans, thereby empowering individuals to navigate financial challenges more effectively.?
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Additionally, AI algorithms can analyze individual financial profiles and provide personalized wealth advice tailored to specific needs and goals, empowering individuals to make informed financial decisions and build long-term financial resilience.?
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Relying on technology alone doesn’t pave the way for a brighter and more promising future. For a large percentage of the world’s population, the current banking and financial system presents several challenges to achieving financial well-being. Substantial fees, complex financial products, and limited access to banking services hinder many from effectively managing their finances. Economic inequalities and systemic barriers often exacerbate financial insecurity, making it difficult for marginalized communities to build wealth and achieve financial stability. Predatory lending practices and inadequate consumer protection measures can leave individuals vulnerable to financial exploitation and debt traps.?
The market system has hardened the barriers to financial inclusion through various mechanisms, including disparities in income distribution, lack of access to formal financial services in “non-profitable” markets, and systemic biases that exclude marginalized populations.?
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Moreover, bureaucratic hurdles and regulatory constraints have more often than not impeded the establishment of inclusive financial systems, making it difficult for individuals without traditional forms of identification or credit history to access banking services. To date, the Internet revolution has created a digital divide that exacerbates these challenges, for those without the necessary knowledge and skills are further marginalized from participating effectively in the digital economy.?
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The challenge here for our Summer School participants goes far beyond the availability of data and algorithms.?Financial well-being can’t be objectively defined, but must be subjectively built upon the physical, mental, and emotional experiences of individuals and communities.?Financial well-being is subjective and dynamic,?evolving over time and in response to cultural, societal, and personal visions of success. The application of AI to better equip individuals to?plan for their?future will inevitably “move the goalposts” on?the fundamental issues of equality, prosperity, and well-being. As in other fields of AI practice,?its middle and long-term benefits will depend on our ability to enrich human intelligence.?
DRIVING FINANCIAL WELL-BEING AND INCLUSION:
STARTS AND ENDS WITH PEOPLE
Prof. Karen ELLIOTT
Critically reflecting on a decade of discussing financial well-being and inclusion at numerous panels/events/committees (Alan Turing, The Payments Association, FCA (UK), etc.)) via data-driven (artificial intelligence, AI) technological solutions, provides the opportunity to gauge progress in tackling this challenge beyond the hype. Undoubtedly, the financial services industry is doing ‘better’ which as humans, is all we can realistically strive for, to incrementally change our mindsets, culture, and norms, translated into action because AI is fundamentally designed, trained, adopted, and used by people. The issue is that not all people have a say on how or what shapes AI design and training parameters, resulting in the current narrow ontology that embeds automated inequalities in AI solutions, reversing the intent to drive well-being and inclusivity.
For instance, writ large in education’s role; access to computer science/STEM skills to drive inclusion attracts mainly white, male applicants (cf. 80%). This lack of diversity of thought results in AI solutions that reflect the developers lived experience and ignores alternative perspectives?the ‘garbage in, garbage out’ Ava Lovelace strapline prevails. Awkward critical questions and responsibility to check for bias must feature at each stage of innovation, placing well-being/inclusion at the heart of data-driven co-design, to continue doing ‘better’ in an authentic manner. If this crucial facet is omitted, the ‘tickbox’ mentality endures and responsibility at all levels to drive inclusion is translated into the box being ticked, and job done.
A paradigm mindset shift must actively seek and engaging with diverse perspectives across gender, ethnicities, and other societal factors, otherwise, bias which manifests in the poverty premium (e.g., the ‘wrong’ postcode can present a risk to accessing credit), increases society’s digital divide. To progress, recognition that technologies start and end with people throughout the design to release phases must be discussed and embraced, if harnessing AI’s potential is to occur. The technology in and of itself is not a panacea to solve societal problems, rather, critical thought underpins the best use of AI for the right use case, to iteratively address financial well-being and inclusivity challenges.
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The authors seek to elucidate the conceptualization of financial well-being and propose a theoretical framework for its understanding by examining and synthesizing its theoretical foundations.?
Despite its primarily individual focus, comprehending financial well-being necessitates contextualization within broader societal dimensions, given its profound societal implications and its intrinsic connection to socio-economic advancement and subjective well-being.?
Employing a qualitative-descriptive approach informed by empirical research and the insights of various scholars and institutions, this study seeks to consolidate the definition of financial well-being while concurrently exploring and comparing its diverse theoretical underpinnings.
This article explores the correlation between digital financial literacy and financial well-being within the context of Korean adults.?
Through an analysis of data obtained from online surveys, this review elucidates the connection between digital financial literacy and financial well-being, pinpointing a substantial association primarily attributed to?2 key factors:?
Notably, digital financial literacy exerts a more pronounced impact on financial well-being than mere financial knowledge, yielding significant effects across diverse socio demographic strata.
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This contribution delves into the utilization of advanced gradient boosting techniques for forecasting subjective assessments of financial well-being, employing the comprehensive Consumer Financial Protection Bureau (CFPB) National Financial Well-being dataset.?
With a focus on ensuring interpretability, this study endeavors to discern the pivotal observable factors crucial for precise predictions.?
Subsequently, these pivotal features undergo examination via factor analysis, aiming to unveil latent themes embedded within the dataset, thus contributing to a deeper understanding of the intricacies surrounding financial well-being.
The author argues that AI offers significant support across various facets of wealth management.?
Firstly, it enhances advisor efficiency and productivity by automating time-consuming tasks like paperwork and note-taking, thereby enabling advisors to allocate more time towards building stronger client relationships.?
Secondly, it elevates personalized advice by automatically tracking client information, monitoring account activity for potential advisory opportunities, and conducting quantitative analyses to suggest financial improvements tailored to each client's unique situation.??
Additionally, AI aids in preserving institutional memory by effectively cataloging shared information from advisor-client interactions, ensuring valuable data isn't lost or forgotten.??
Finally, AI drives cost reduction and risk management by automating middle and back-office processes, increasing monitoring and supervisory activities, and streamlining compliance procedures.
Achieving financial well-being is a universal life goal, with financial educators focusing extensively on understanding its determinants. S. Sarwal and his colleagues argue that digital financial inclusion is gaining prominence, particularly in assisting those at the bottom of the economic pyramid in engaging with the financial system.?
Fintech companies leverage artificial intelligence to facilitate digital financial inclusion, ensuring participation from marginalized groups like women, youth, and low-income individuals.
They summarize here their recent study investigating the roles of financial behavior, efficacy, and attitude in attaining financial well-being, revealing the mediating effect of AI-enabled financial inclusion.??
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Using SMART PLS 4.0.9.3, data from 426 respondents were analyzed, highlighting the significance of fostering sound financial practices through education to enhance financial security and support global poverty eradication efforts outlined in the UN's SDGs.
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Generative AI will play an important role in addressing financial literacy, but it will also place increased pressure on financial education.
In this opinion piece, Michael R. Roberts dives into the pros and cons of using generative AI and ChatGPT to boost financial literacy and what it means for financial education.
The author suggests that AI will play a large role in addressing financial literacy. This said, he argues that the imperfections and the nature of generative AI interactions place an even greater demand on users’ understanding of finance principles and critical thinking skills.
He concludes that, at least in the short run, generative AI going to place an even greater emphasis on understanding financial principles and developing critical thinking skills — two central objectives of proper financial education.
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The global wealth management sector is undergoing significant transformation due to several converging megatrends, including technological advancements, increased regulatory scrutiny, intensified competition, and shifting demographics.
In response to these shifts, ThoughtLab initiated a comprehensive research initiative named Building a Future-Ready Investment Firm.
Through this program, experts and sponsors were queried about the impact of technology, particularly artificial intelligence, on the industry's evolution and operational dynamics.
Their blog post?offers insights gleaned from their responses, shedding light on the changing landscape of wealth management and the role of technology in shaping its future.
In the contribution for the World Economic Forum (WEF) annual meeting, the author argues that AI holds immense promise as a catalyst for transforming financial services, particularly for marginalized populations such as the underbanked and unbanked.
By leveraging artificial general intelligence (AGI), financial institutions can overcome traditional barriers to access by tailoring products and services to individual needs and circumstances.
Moreover, AGI can facilitate credit expansion by identifying and managing risks associated with lending to individuals with limited credit histories.
In sum, AGI-driven solutions can enhance financial literacy through personalized guidance, fostering informed decision-making and contributing to a more inclusive financial ecosystem.
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Financial inclusion, ensuring access to affordable financial services for all segments of society stands as a fundamental facilitator of sustainable development.
Over the past decade, the significance of this concept has garnered increasing attention from researchers, leading to this paper's systematic literature review focusing on the implementation of AI for financial inclusion.
Drawing from articles sourced from databases such as Emerald and Science Direct, the review outlines the dimensions of AI and financial inclusion research explored by scholars.
While highlighting the importance of AI in achieving financial inclusion, the review underscores the need for further integration of AI and machine learning methodologies in research endeavors.
Below is a list of previous AI Muse? Grenoble newsletters
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