How tech supports financial literacy and better money management
Financial literacy is the foundation of sound wealth management. As modern technology improves access to information and learning tools, an improvement in financial education may be on the cards.
The wealth management industry has a vested interest in increasing clients’ financial literacy. Research consistently shows that more financially literate individuals are more likely to use professional advisors. Because financial literacy helps individuals make good decisions to build their wealth over time, it could also help create a larger pool of assets for advisors to manage.
As it stands, levels of financial literacy among the general public have made scant progress in recent years. In the US, for example, an in-depth barometer of personal finance knowledge known as the P-Fin Index has held relatively steady between 2017 and 2024 at around 50% (see Figure 1). People’s understanding of risk is one of the biggest challenges (see Figure 2). In the European Union, the first ever bloc-wide survey on financial literacy in 2023 was described as a “wake-up call” by Mairead McGuinness, Commissioner for Financial Stability, Financial Services and the Capital Markets Union.
Young learners
The tide may begin turning as access to real-time financial information along with a proliferation of online content from both professional advisors and social media “finfluencers” increases demand for financial education.
Victoria Nabarro, Founder of Veda Wealth in London, UK sees a lot of interest among clients in their early 20s in learning more about managing their wealth. Previous generations had to rely on their financial advisors because they didn’t have the same access to information to fully understand what’s going on in real-time, she explained.
“With the younger generation, there’s this huge push to learn, to understand, to take control. And that’s not to say that they don't want to work with an advisor, but they want to work alongside the advisor. And it definitely feels like more of a collaborative process.”
Financial literacy can give clients a greater appreciation of the expertise and guidance provided by wealth managers, laying the foundation for a long-lasting relationship. It can lead to more productive discussions and enhance collaborative goal-setting. And it can help insulate firms from reputational damage by ensuring clients understand the risks involved in their investment strategies.
Turning knowledge into action
To be truly financially literate, people need more than just instructions for managing their personal finances, budgeting and investing. They also need the ability to apply this knowledge effectively.
Generative AI tools like ChatGPT and Gemini, for example, can tell you something about almost anything and outperforms average human scores on several tests of financial literacy (Figure 3). But there can be a big gap between having a plan and successfully implementing it.
“There’s no shortage of information today on any task,” said Noah Damsky, Founder and Wealth Advisor at Marina Wealth Advisors in Los Angeles, California. “I see tons of things online about different exercise tips and health tips, but in the end, we still have the same obesity problems in this country. It’s not because there's a shortage of information. It’s because of a lack of good execution.”
That’s where the role of a human coach proves its worth, keeping people on track to achieving their goals. Financial advisors are essentially wealth coaches, helping clients overcome emotional biases and cognitive errors that tend to send them off course.
GenAI has its place, too. It can be used to create financial education materials for clients, for example. Danielle Labotka, a behavioral scientist for Morningstar Research Services, revealed that wealth management clients welcomed financial advisors using GenAI to help demystify jargon.
But GenAI can’t be trusted to manage a portfolio. The best-laid plans created by computers often fail spectacularly because the real world is full of complexity: dealing with it requires the flexibility that is only cultivated through experience.
“You can’t just ask ChatGPT ‘what do I do if I have USD20 million and don’t want to leave it all to the government,’” explained Leah Jones, MD and Partner at Hightower Bethesda. “I am sure ChatGPT would give you some solid foundational advice, but the technology the way it exists today can’t account for all the nuances particular to an individual’s situation.”
“Tax codes and estate planning rules are specific to each area and constantly evolving, for instance. People can have wildly differing preferences for what they would like to do with their money. And there can be psychological issues to navigate too when it comes to people and wealth,” Jones added.
Clarity builds discipline
Arguably one of the biggest psychological issues for people trying to get wealthy – or fit– is that sticking to plans can be difficult when the payoffs are so far away. As Matt Reiner, Managing Partner at Capital Investment Advisors in Atlanta, Georgia, said: “Even if you do understand saving and budgeting, the real result doesn’t happen until you do that consistently for 30 years, and so it’s harder to see that value.”
Technology can augment the ability of wealth managers to make that far-away value clearer to clients, strengthening clients’ determination to stick to their advisors’ strategies. One common way is to use visualization and modelling.
Nabarro observed that even though “older practitioners and older firms in any industry are reluctant to adopt new technology, the uptake of cash flow modelling across all different types of firms has been huge.”
“While it is mandatory in some cases now, as prescribed by our regulator, I think people are just using it because they find it so helpful to give clients this visual financial forecast. It can really help a client connect with the importance of the future and the impact of action or inaction today,” added Nabarro.
Looking further ahead, virtual reality (VR) could help bridge the gap between decisions today and future consequences. Reiner sees potential to use a combination of VR, gamification and AI to instill financial concepts. He gave the example of Floreo, which uses VR to help neurodiverse people learn to deal with different situations, and suggested that wealth managers could develop similar simulations.
“That immediacy can then give instant gratification and ingrain the behaviors and the habits that we need and we want from a financial literacy program,” said Reiner.
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