Originally published in Carroll Capital, the print publication of the Carroll School of Management at Boston College. 听
As anyone who accepts suggestions from Netflix or Spotify knows, technology can make you lazy: You passively take the tips instead of searching yourself. So it goes too with personal financial technology (fintech), according to research by Carroll School Associate Professor of Finance Jonathan Reuter.
Reuter and colleagues have shown that computer-generated recommendations鈥攕o-called robo-advice鈥攃an help people reduce their debts faster. Those who take the advice avoid late fees and extinguish their costliest loans first. But in a multi-part experiment, the researchers also found robo-advice recipients didn鈥檛 improve their money-management skills.
When later asked to work through debt problems on听their own, study recipients who had earlier received robo-advice made common mistakes. 鈥淭hey鈥檇 send an equal amount of money to each credit card鈥攊f the two loans have different interest rates, you should pay more toward the one with the higher rate,鈥� Reuter says. 鈥淥r they鈥檇 payoff a smaller balance first, even if it had a lower rate, just because they鈥檇 feel good about having paid something off.鈥� They had learned little.
But one group did improve鈥攆olks who didn鈥檛 receive any robo-advice and had to work through debt problems on their own as part of the study. The researchers concluded that automated guidance 鈥渃rowds out learning by doing,鈥� something to consider the next time you log onto ChatGPT.
