ChatGPT says these six things can help prepare for a recession. One adviser says the chatbot misses a key point.

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Economists for the past year have largely agreed the U.S. would enter a recession at some point in 2023: A recent Wall Street Journal report found the chances to be somewhere in the realm of 61%. And although there have been signs of weakness — inflation has remained high at 4.9%, the Federal Reserve raised rates at its fastest pace in 40 years, and 30-year, fixed-rate mortgages are hovering at around 7% —  the country has still not entered a technical recession. 

While we know what humans think about the potential threat of a prolonged economic downturn, what does the latest advancement in artificial intelligence (AI) — in particular, ChatGPT — have to say about the matter? To find out, we asked the platform’s most updated version, ChatGPT-4, to discuss the best ways to prepare for a financial recession, in the event we enter one. Then, we asked a financial adviser to critique its response.  (Looking for a financial adviser? You can use this tool to get matched with advisers who might meet your needs.)

How should I prepare financially for a potential economic recession?

ChatGPT-4 response

“Preparing financially for a potential economic recession is always a good idea, as it can help you weather any financial challenges that may arise. Here are some steps you can take:

  1. Build an emergency fund: Make sure you have enough money saved up to cover at least three to six months of living expenses. This can help you avoid having to dip into credit cards or loans during a recession.

  2. Pay down debt: If you have any outstanding debt, focus on paying it down as quickly as possible. This can help reduce your monthly expenses and make it easier to weather any financial challenges.

  3. Review your investments: Take a look at your investment portfolio and make sure it is diversified. Consider investing in low-risk options such as bonds, and avoid putting all your money into one stock or industry.

  4. Cut back on unnecessary expenses: Review your monthly expenses and look for ways to cut back. This can help you save money and reduce your monthly financial obligations.

  5. Increase your income: Look for ways to increase your income, such as taking on a part-time job or freelancing. This can help you build your emergency fund and pay down debt faster.

  6. Stay informed: Keep up-to-date with the latest economic news and trends. This can help you make informed decisions about your finances and adjust your strategy if necessary.

Remember that preparing for a potential economic recession is about being proactive and taking steps to protect your financial future. By taking the above steps, you can be better prepared to weather any financial challenges that may arise.”

It should be noted that much of this response from ChatGPT was nearly directly pulled from various stories on the topic from places like Bankrate, Cointelegraph and The Motley Fool, to name a few.

Response from a human financial adviser and our analysis

Those steps are not dissimilar to the advice of most financial professionals. But while AI is capable of pulling together a technically correct response, Catherine Valega of Green Bee Advisory in Boston says there is one big thing the latest and greatest in technology gets wrong: that it “completely misses that the financial planning process is dynamic and personal.”

“So much about what I do as a financial advisor is to understand my clients’ own unique money stories,” says Valega, who is also a certified financial planner and holds an MA in International Relations from the Johns Hopkins School of Advanced International Studies and a BA in Economics from the University of Pennsylvania. “Relationships with money are often more complex than relationships with partners.”

Looking for a financial adviser? You can use this tool to get matched with advisers who might meet your needs.

She’s right that ChatGPT simply might not offer personalized enough advice, at least not yet. Take the advice on the emergency fund. ChatGPT recommended 3-6 months of living expenses, but 1) pros often say you only need essential living expenses in your emergency fund, and 2) 6 months may not be enough money for some people, such as freelancers, seasonal workers, or those who work in higher-risk industries where layoffs are more common and jobs can be harder to replace.  In other words, that generic advice may actually do a disservice to some individuals.

And when it comes to paying down debt, other generic advice like the above from ChatGPT may not be optimal for everyone — consider those with mortgages that are around 3%. Paying down that kind of debt could cause actually you to miss out on higher returns from other investments, wipe away large amounts of liquidity and potentially incur future losses in the event the housing markets fluctuate and all your cash is tied up into your home. 

Ultimately, Valega says that while she thinks ChatGPT is helpful to some, its most useful contribution is “for boiling down a complex topic into a language you can understand.”

Looking for a financial adviser? You can use this tool to get matched with advisers who might meet your needs.

The verdict

For those looking for generic advice, ChatGPT might very well point you in the right direction and help you get started on your fact-finding journey. (Just be sure to fact-check what you find out.) It’s also a free tool — while a financial adviser is decidedly not — and can be an ongoing resource for follow-up questions. But with the latest advances in AI still in its infancy, chatbots in the first half of 2023, at least, are still best for copying and combining existing resources to provide often simple answers to more complex questions. 


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