From The Straits Times    |

From generating music and art to translating text, answering questions and solving problems, AI (artificial intelligence) tools such as Google Bard, OpenAI’s ChatGPT and Midjourney are starting to become a valuable part of our lives. 

AI is even shaping the financial planning landscape, with an increasing number of platforms helping users analyse their spending habits in real time, create budgets, minimise investment risk, and make better financial decisions.

While it is unclear what percentage of Singaporeans use or have an interest in using AI for financial advice and assistance, an August survey by CNBC found that 37 per cent of US adults are interested in using AI tools to help them manage their money. The survey also found that 11 per cent are “very interested”, and 4 per cent already use AI tools for money management.

Whether AI tools end up replacing financial advisers remains to be seen, but because such services are free, often from reputable companies, and instantly accessible, they can be a good place to start if you need to get your finances in order, says Karen Tang, certified financial planner and senior wealth management consultant.

But such tools are only as good as the sources from which the advice or information was obtained, she adds. “AI answers therefore can’t always be taken as gospel. They need to be verified by someone competent before they can be trusted.

 “Their answers also depend on the specificity and detail of the questions asked. How well you’re able to articulate the nuances of your preferred goal-achievement strategy is key.”

Additionally, Karen cautions about the general and simplistic nature of AI-generated answers. You may have unique questions or concerns for which AI tools simply cannot address accurately or reliably.

According to Jasmine Siah, financial services director at Singcapital, AI tools also lack the “human touch”, which she believes is something that only financial advisers can provide. 

 “Attentive listening, observation, and help with dissecting information deliver better outcomes for clients overall.”

With Singapore women having a range of pressing money concerns, we decided to put the AI chatbots Bard and ChatGPT to the test by asking them specific questions related to inflation, saving for retirement, and property affordability. We then ran the AI-generated replies by three financial experts to determine their helpfulness and accuracy. 

Ed’s note: Answers have been shortened for brevity.

About retirement

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Q: I am 30 and have yet to start saving for retirement. Am I doomed to work forever? How can I start my retirement journey now?

Response from Bard: No, you are not doomed to work forever just because you haven’t started saving for retirement yet. While it’s certainly true that the earlier you start saving, the more time your money has to grow, it’s never too late to start planning for your financial future.

Here are some steps you can take to start your retirement journey now:

  • Assess your current financial situation.
  • Set a retirement goal.
  • Contribute to your CPF.
  • Open a supplementary retirement savings account.
  • Start investing early.
  • Seek professional advice.
  • Review and adjust your plan regularly.

Remember, retirement planning is a marathon, not a sprint. It’s more important to start saving consistently and increase your contributions over time than to try to save everything up at once. With discipline and planning, you can secure a comfortable retirement for yourself.

Karen says: I would add the following tips to the AI-generated reply:

• Track your expenses: There are good budgeting apps out there, like Spendee, Wally and Expensify.

• Budget your monthly outflows in advance: In the last week of every month, work out your most important expenses for the following month. Also, look at your spending record over the past three months to get an insight into your expenditures, both planned and unplanned. 

• Prioritise what’s most important to you: Not just in terms of the bigger, more obvious goals, but also the little things that bring you joy and keep you motivated. These may include a gym membership, personal care and grooming packages (facials and massages), nights out with friends, meals at your favourite restaurant, staycations, and so on.  

• Manage your spending: Do this when you find yourself going off-track. Jot down the reasons for it. This will help you set more realistic and achievable goals next time.  

• Pay yourself first: Set aside money at the start of the month for your single most important goal, such as retirement or buying a home.  

• Consider ways to increase your income: Look for other income-generating opportunities so that you can convert your energy, passion and creativity into profits to help you fulfil your goals.

About housing

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Q: Can I afford to buy a house in Singapore now?

Response from Bard: Whether or not you can afford to buy a house in Singapore depends on a number of factors, including your income, savings, debt, and desired property type and location. Here are some general guidelines to help you assess your affordability:

• Income: Typically, your gross monthly income should be at least three times the monthly mortgage payment you expect to make.

• Savings: You will need a substantial down payment for your home purchase, which can range from 15 to 25 per cent of the property’s purchase price. This down payment can be supplemented with your Central Provident Fund (CPF) savings, but you should also have some cash reserves for other housing-related expenses, such as legal fees, stamp duty, and renovation costs.

• Debt: Your total debt servicing ratio (TDSR) should not exceed 55 per cent of your gross monthly income. This includes the monthly mortgage payment, car loan payments, instalment plans, and other debt obligations. Excessive debt can strain your finances and make it difficult to manage your housing costs.

• Property Type and Location: The type of property you choose (HDB flat, EC, or private property) and its location will significantly impact your affordability.

To determine if you can afford a house in Singapore, consider using a home affordability calculator or consulting a financial adviser. These tools can help you estimate your monthly mortgage payments, down payment requirements, and total housing costs based on your income, savings, and debt.

Here are some additional tips for increasing your chances of buying a home in Singapore:

• Start saving early.

• Reduce your debt: Pay down existing debt, such as credit card balances or car loans, to lower your TDSR and increase your borrowing capacity.

• Explore government schemes: Take advantage of government-subsidised schemes like the Home Grant or Enhanced Home Protection Scheme to reduce your upfront costs and protect your home purchase from unforeseen circumstances. • Consider joint ownership: If you have a partner or family member with whom you can purchase a home, you can combine your incomes and resources to increase your affordability.

Buying a house is a major financial commitment, so it’s important to carefully assess your financial situation and make informed decisions. By understanding your affordability, planning your finances, and utilising available resources, you can increase your chances of achieving your home-ownership goals in Singapore.

Jasmine says: The AI-generated response is appropriate. However, it overlooks the fact that every household or individual is unique, and that everyone’s needs are different.

The response only lists the criteria for you to own a house, but it doesn’t mean that you can afford to buy the property now. Your ability to own property may be influenced by a range of factors, from life changes and unforeseen circumstances (such as having a child, illness, or having to look after an ageing parent), to sudden changes in government policy, and the AI response doesn’t seem to take this into account. 

For example, right now, some HDB flats are selling for $1 million. If a couple wish to buy such a flat, they have to, at the age of 30, each be earning at least $7,000 a month (or around $144,000 per year, combined). As such, they need more substantial savings,  or they have to be earning a higher income than before. 

About inflation

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Q: I’m earning the same as I did last year, but inflation has hit the roof. How much do I need to earn and how can I reduce my spending in order to continue saving?

Response from ChatGPT: I’m not a financial expert, but I can offer some general tips. First, take a closer look at your budget. Identify areas where you can cut back, like unnecessary subscriptions or dining out. Consider buying generic brands instead of premium ones.

Next, try negotiating your bills – utilities, Internet, or even insurance. Sometimes, companies are open to adjusting rates.

As for increasing your income, explore opportunities for career growth, or consider acquiring new skills that could make you more marketable. Networking can also play a crucial role in career advancement.

Ultimately, it might be helpful to consult with a financial adviser to create a tailored plan based on your specific situation. They can provide personalised advice and help you navigate through the challenges of inflation.

Bryan Chan, Certified Financial Planner and Client Adviser at Providend, says: How much extra you’ll “need to earn” to “continue saving” really depends on how much your expenses have gone up, and exactly how much you hope to save.

Headline inflation numbers are indicative of a rise in general price levels pertaining to a representative basket of goods and services. The reality, though, is that we all spend different amounts on different things, so everyone has a personal inflation rate that’s unique to them.

Similarly, everyone’s savings rate is different. If you were saving a lot of money on an annual basis, a rise in inflation without an increase in income would reduce your savings rate, but you might still be able to save enough to be able to achieve your goals. Someone saving a lot less may not be able to save at all in the same situation, or may even start spending down their savings. Ultimately, how much you “need” to save is really determined by your broader financial plan and life goals.

With regards to reducing spending and increasing your income, the AI-generated response, while generic, is helpful. I would add that, even before getting into a tough financial situation, you’d be wise to categorise ahead of time which of your expenses are essential and/or fixed, and which are discretionary and/or variable. Doing so will ensure that you know where and how to cut back if you ever need to. You can even prioritise your expenses in order of importance for a clearer picture.

When it comes to increasing your income, exploring new job opportunities is better for improving longer-term prospects rather than obtaining the immediate relief that may be required. If your finances are really tight, 

I suggest having an honest conversation with your boss, because companies often take inflation into account when adjusting salaries. Another good way to boost your income in the medium-term would be to start a side hustle – something that’s become increasingly popular. 

Q: My monthly expenses include utilities, food, rent, insurance, car, clothing and entertainment. How do I plan my budget to adjust for inflation, so that I don’t have to go without the essentials or miss my bill payments and fall into debt?

Image: Getty Images

Response from ChatGPT: Smart thinking! Planning for inflation is crucial in maintaining financial stability. Here’s a rough guide to help you out:

  • Track your expenses: Start by listing all your current monthly expenses. This includes everything from rent and utilities to entertainment and groceries.
  • Categorise expenses: Group your expenses into fixed and variable categories. Fixed expenses like rent and insurance tend to be more stable, while variable expenses like entertainment and groceries can fluctuate.
  • Estimate future costs: Research historical inflation rates, and make an educated guess about how prices might change in the future. Apply this percentage to each expense category to estimate your future costs.
  • Emergency fund: Maintain an emergency fund to cover unexpected expenses. This helps prevent dipping into your budget if an unforeseen cost arises.
  • Review and adjust: Regularly review your budget and make adjustments as needed. If certain expenses consistently exceed your estimates, it might be time to reassess and make changes.
  • Invest and save: Consider investing some of your savings in assets that historically outpace inflation, like stocks. This can help your money grow over time and maintain its purchasing power.
  • Negotiate and shop smart: Regularly review your service providers and see if you can negotiate better rates. Also, be a savvy shopper – look for discounts, buy in bulk, and consider alternative brands.
  • Stay informed: Keep an eye on economic trends and news. Being aware of potential changes can help you adjust your budget proactively.

Remember, flexibility is key. Life happens, and unexpected expenses may arise. Having a well-thought-out budget gives you the flexibility to handle these changes without compromising your financial health.

Bryan says: Keeping abreast of economic news is helpful. While timing the market in investing has been shown empirically not to be helpful, ensuring that we make changes to our budgets early makes a big difference to whether we will be able to weather challenging periods – including those with high inflation. Cutting expenses early and saving more in anticipation of tough times, rather than as a reaction to them, is invaluable advice.

I would add that, as far as possible, a healthy savings rate of at least 20 per cent during “normal” times is best practice. This not only means that you’re consistently saving for your future, but also that you have an income surplus over your expenses. In high-inflation times like now, this money can go a long way towards absorbing some of the increased costs that may cause one to fall into debt.