Young Australians are trusting AI for financial advice. But chatbots can fail in 3 ways

For the first time, more young Australian investors are taking investment advice from artificial intelligence (AI) than from a financial professional. The Australian Securities Exchange’s Australian Investor Study reports that out of investors aged 18 to 29, 24% had used an AI tool for investment advice in the past year, and 19% had used a financial planner or adviser. By comparison, 19% of investors aged 30 to 49 used AI for advice, just 6% of 50 to 64-year-olds, and 1% of over 65s. Chatbots are free, always available and happy to answer any money question. They are also unlicensed, accountable to no one, prone to confident mistakes, and sit outside the complaints and compensation schemes built for people who get bad advice. Why Gen Z invests differently Researchers use a framework called “generational cohort theory” to explain why generations behave differently. The big events you experience growing up shape your values, beliefs and attitudes, including how you spend and invest. Gen Z grew up with the global financial crisis, the COVID pandemic and a worsening climate outlook. They are the “anxious generation”. It changed how they think about money. Previous generations saved from a salary, bought a home and then started investing once they felt secure. Shares were a second layer of wealth, built on a house and a steady job. Gen Z has watched house prices climb out of reach and sees no quick end to the cost-of-living crisis. For them, direct investing — in shares, exchange-traded fund (ETF) or crypto — has become the main way to build wealth, not a back-up. The catch is they start investing earlier in life, with less experience and less of a financial safety net. What are young people asking AI? The Australian Securities Exchange survey doesn’t say. Two other surveys this year help fill some of the gap. AustralianSuper found 28% of 18 to 29-year-olds use AI for financial guidance, mostly to research and compare investment options. Most check what they’re told elsewhere. But one in four have acted on AI-generated financial information without checking. The corporate regulator’s Moneysmart research found 64% of young Australians trust AI platforms for money advice. AI was their most trusted source, ahead even of “finfluencers”, the social media personalities who give money tips. Read more: FinTok and ‘finfluencers’ are on the rise: 3 tips to assess if their advice has value Some human advice Despite the rise of artificial intelligence, people still matter. Young investors want professional advice. Nearly half say they intend to see a financial adviser in the next year, but are deterred by the cost. It’s no surprise Gen Z leans on the people around them. Of those surveyed by the ASX, 45% rely on their family and friends as a source of investing information. So why turn to a chatbot as well? Because a chatbot never judges you. Friends and family can be negative, busy or dismissive. AI makes you feel confident and smart, every time. Young investors are cautious. Of those surveyed, 79% of them prefer guaranteed or stable returns. They are also the least confident in their own knowledge. No wonder they turn to a tool that never sounds unsure of itself. AI isn’t replacing human advice so much as filling a psychological gap. It offers the safety and confidence young investors seek, but none of the safeguards attached to regulated advice. So what’s the harm? A chatbot fails in three ways a licensed adviser can’t. 1. It sounds confident, even when it’s wrong Chatbots answer from training data that may be out of date, or from web sources they can misread. The result is fluent, confident answers that may be flatly wrong, also known as AI hallucinations. 2. It remembers what you tell it To get useful guidance about your money, you have to tell the chatbot about your finances. Depending on your settings, chats can be stored, reviewed by tech company staff and used to train future models. 3. Nobody is on the hook A licensed adviser must act in your best interests and put their advice in writing. If they get it wrong, you can complain to the Australian Financial Complaints Authority. A chatbot has no licence, no duty to act in your interests, gives no written advice, and no ombudsman coming to your rescue. What needs to change AI is a reasonable place to learn what an exchange-traded fund is. It is a much less reliable place to decide whether to buy one. If you do, ask for sources, check them against the government’s Moneysmart website, keep your account details out of it, and talk to a knowledgeable person before you act. The UK’s financial regulator has asked AI companies to add clear disclaimers to financial answers. Perhaps Australia should follow suit if it wants to protect young investors from harm. Young Australians are turning to retail investing as a main route to wealth. They want advice that makes them feel safe, but can’t afford the professionals. The government has plans for a new class of adviser that will only operate through super funds and life insurers. That misses where Gen Z actually builds wealth. Until affordable, licensed advice exists where Gen Z actually builds wealth, that gap will likely be filled by whatever is free and makes them feel safe, confident and smart. Read more: What are AI hallucinations? Why AIs sometimes make things up