Using AI To Teach Your Child About Money

By Alec Lindenauer, COR Chief Allowance Officer

A 2023 study from JD Power reported that 36% of respondents claimed their financial advisor used language they don’t comprehend. As a member of the advisor community, I wish that number was far lower. And I can only imagine how much higher that number would be if they had surveyed kids about the terms their parents use when explaining money concepts. 

I was reminded of that when a new COR mom told me she wouldn’t know how to answer her daughter if asked what a 401k was. It also took me back to when I tried to explain credit cards to my youngest daughter while she was in kindergarten. That’s when I added an introduction to most of my money lessons by saying, “I’m going to explain this, but I want you to stop me as soon as I say a word that you don’t understand.”

What if parents aren’t comfortable with the material they’re expected to explain? How would this mom explain a 401k to her daughter if it’s a completely foreign concept? Or what if it’s familiar, but she just didn’t know how to translate her knowledge into fourth grade-ese?

Enter Artificial Intelligence. And no, not the Arnold Shwarzenegger Terminator kind. 

I often recommend parents use Google as a resource when teaching their children about money, but lately, I find myself recommending Chat GPT, the A.I. chatbot that has been taking the world by storm. In fact, that’s exactly what I recommended to this mom. 

But what does that exactly look like? For some, saying, “Go use Chat GPT” is as useful as saying, “Go explain a 401k.” To help with both, below is an exact excerpt from a conversation I had with the Chat GPT bot to demonstrate its usefulness. 

In no way is GPT perfect. Just like Google has a ton of answers, you still have to work a bit to make your search give you exactly what you want. Same here. But, the head start GPT gives is miles beyond what a search engine can do.

Here's how things went down: 

The first step was to create a user account on the Chat GPT website. Easy peasy. 

After that, I started a new chat with the following prompt: “Please act like a 4th grade teacher and explain to me what a 401k is.”

Frankly, I didn’t care for the response I got. It was okay, but still a little complex, and didn’t explain why it’s called a 401k. I thought that part would be helpful for a fourth grader, so I answered with a follow-up prompt: “Try that again, but make it more simple, and explain why it's called a 401k account.”

Here’s what the bot came up with:

Sure, I can simplify it further!

A 401k is a special kind of savings account that grown-ups use to save money for when they're older and no longer working. It's called a 401k because that's the section of the tax code that created it.

When someone has a job, they can choose to put some of their paycheck into the 401k account. This money is not taxed right away, so it can grow more quickly. The grown-up can choose where to invest their money, which means they can put it into different companies.

When the grown-up gets older and retires, they can take the money out to pay for things like food, housing, and healthcare. But, the government will tax the money at that time.

It's important to save for retirement because people may not have a job when they're older, and they'll still need money to live.

OK, now we’re getting somewhere! But because the bot needs a bit of training, and I thought the explanation needed a bit more, I gave it one more prompt:

“That's better. Keep it simple again, and please explain to me why adults would choose to do that instead of just investing normally.”

Here’s what my new bot friend gave me:

Sure thing, I can explain that!

Grown-ups choose to save money in a 401k account because it has some benefits compared to just investing normally. Here are some reasons why:

• Taxes: When someone invests normally, they have to pay taxes on any money they make from their investments. With a 401k, the money isn't taxed until it's taken out, which means it can grow more quickly.
• Employer Matching: Some employers will match a certain percentage of the money their employees put into their 401k accounts. This means that the grown-up gets extra money for their retirement savings without having to do anything extra.
• Automatic Savings: When someone has money automatically taken out of their paycheck and put into their 401k account, they're more likely to save consistently. It can be easy to forget to save otherwise.

So, even though investing normally can also be a good idea, a 401k has some extra benefits that can help grown-ups save more for their retirement.

Again, no part of the above is perfect. But that’s okay … It doesn’t need to be. Amongst other things, what AI can do now is help parents start conversations they might not otherwise start. 

Artificial or not, that’s powerful.