Leveraging Artificial Intelligence to Simplify Financial Knowledge

Artificial intelligence can help explain complex financial knowledge in simple language.

"An investment in knowledge pays the best interest." – Benjamin Franklin

Over the years, Indian investors have been trying to reap benefits by investing in the stock market. This is clear from the ever-growing number of Demat account holders which increased by 63% in the fiscal year 2021-2022[1]. There are two major reasons for this. Firstly, the Sensex (Indian stock market index) has grown rapidly in the last two decades, from 800 points in 1990 to more than 50,000 points in 2022[2]. Secondly, the return of investment from traditional avenues such as real estate, precious metals, bank deposits, and the like has been constantly reducing.

However, it is interesting to note that less than 1% of active traders could beat the returns from a bank fixed deposit over a three-year period[3]. This is primarily due to the lack of proper strategies and financial domain-specific knowledge among novice investors. The presence of jargons and difficult concepts makes it difficult to disseminate financial knowledge. The fear of losing money also often hinders people from investing regularly. Thus, it is essential to enlighten investors with the knowledge of financial markets and products like equities, bonds, mutual funds, and the like, as this would help them be better informed and formulate winning investment strategies.

In addition to initiatives taken by the government, various organizations, new age startups, and influencers are trying to address this. However, there are several things to watch out for. Firstly, information overload tends to confuse investors. Secondly, influencers and organizations try to promote products that would benefit themselves, and hence the financial knowledge they would be trying to disseminate may be biased. Sometimes, the credentials of influencers are also questionable. Lastly, one size does not fit all. This brings in the need for personalized financial planning.

There is a need, therefore, for self-service, unbiased artificial intelligence (AI)-based tools that would enable investors to better understand financial content and thereby manage their finances well. I would now like to describe a few use cases.

Assessing readability of financial texts and simplifying them

Natural Language Processing (NLP) is a sub-field of AI that deals with helping computer systems understand human language by performing computations. NLP techniques can be used to evaluate the readability of financial texts. Furthermore, it can help explain complex financial concepts in simple language, for the ease of understanding of the masses.

Automated analysis of financial conversations, articles, and news

Executives of companies reach out to investors using various platforms such as social media, conference calls, emails, and so on. An AI-based automated system can analyze the sentiments from these conversations and help distinguish claims from facts for investors. Such a system can be trained further to analyze financial news and reports and provide insights. Similarly, NLP-powered models can aid in environmental, social, and governance (ESG) investing by empowering investors to understand concepts better and make data-driven decisions.

Summarizing reports and disclosures of organizations

In today's fast-paced life, the value of time has become priceless. Reading the annual reports and disclosures of each organization can be very time-consuming. It is necessary to automatically summarize these documents and extract actionable points from them to enlighten investors, which an AI-powered system can do.

Using Computer Vision to interpret graphs

Unstructured financial data includes not only text but also visuals. These visuals can include various graphs. Computer Vision is a sub-field of AI which helps machines understand images. Computer Vision-based systems can be used by investors to interpret and explain various complex graphs present in the brochures and reports of various organizations.

Anomaly detection

In the financial domain, tabular numeric data is available in abundance and is structured in nature. Anything that deviates from the normal can be referred to as anomalous behavior. Detecting anomalous behaviour is extremely important for identifying discrepancies in finances. AI-based systems are capable of alerting investors of such discrepancies.

Robo-advisors

For human beings, it is difficult to have unbiased and judgment-free conversations. We tend to make recommendations based on our knowledge and experience. Also, it's not possible to ask a human educator unlimited questions. Furthermore, the services that human financial advisors provide are costly and cannot be expected to be available 24X7. Approaching various financial advisors on different matters could lead to trust issues owing to the lack of consistency in the information they provide. This brings in the need for AI-powered Robo-advisors. These advisors are chatbots that are always available to answer any question, without being biased. These bots are consistent, provide data-based advice, and do not get overpowered by emotions. Hence, solutions like robo-advisors are the way to go for promoting financial literacy, as they scale very efficiently.

Lastly, it is recommended that one learns and keeps learning as much as one can about finance and inculcates investing as a habit from an early age^[4]. Developing a mindset that prefers delayed returns over instant gratification can take time. Additionally, the compounding effect makes early investing preferable. Thus, it is necessary to explore different solutions that can help people imbibe good financial habits and learn more about investing from an early age, such as through AI-based gamification. Financial literacy can lead to financial freedom, which can help ensure a better quality of life.

Author:

Sohom Ghosh – The author is a data scientist with the AI COE supporting the Personal Investing business at Fidelity Investments India, which is the India center of Fidelity Investments – one of the leading financial services companies in the world. To know more about the work the company does, visit the website.