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'A majority trust a robot over a human to manage their finances': Personal finance expert

Personal finance expert and host of the “So Money” podcast, Farnoosh Torabi, joined Yahoo Finance Live to discuss how COVID-19 has impacted personal finances.

Video Transcript

SEANA SMITH: Let's talk financial literacy because the pandemic has really been bringing more attention to this issue. And right now, two dozen states are considering bills on financial literacy education. So for more on this, we want to bring in Farnoosh Torabi. She's a personal finance expert and also host of the "So Money" podcast. Farnoosh, it's great to see you again. COVID has certainly had an impact on people's finances. Now when we talk about states considering legislation to mandate financial literacy, how helpful do you think this will be? And what do we know just about the effectiveness of financial literacy education?

FARNOOSH TORABI: Well, thanks for having me. I mean, I think literacy is so important, having interviewed so many hundreds of people on my podcast who are really leaders when it comes to financial wellness and building wealth. A lot of them will credit their upbringing and say, you know, we had conversations about money growing up. I learned it in the home-- oftentimes in the home, not so much in the schools.

But I think it's important that schools and everyone, the community, work together to give young people an education, a basic education. Not so much that they can memorize terms and feel like they can become an encyclopedia of financial terms, but that they have an awareness and a comfort level around money. Because what the risk, right-- you talk about what sort of is what's at stake, is that I think you become an adult who feels almost ashamed that they don't know what they don't know.

And as a result, we don't ask the questions. We stay stuck. And what happens is, is a sort of, like, this cloud around you. And, you know, you can google definitions, but it's really the confidence that is lacking. And that not having that education is really what leads to that lack of security and confidence, I think.

ADAM SHAPIRO: We've had guests in the past who say they used to teach that kind of stuff. It was called home economics--

FARNOOSH TORABI: Right.

ADAM SHAPIRO: --back in the day. People always thought it was cooking, and it wasn't. It was how to balance a checkbook and that kind of stuff. I want to talk to you, though. This was a study about two months ago from Oracle on this issue of not necessarily financial literacy, but the people you trust. And in the future, it may not be the people. It might be the robots.

And when I was reading some of your comments talking about artificial intelligence, all I kept thinking about was, oh, beware, long-term capital management. People put their faith in the algorithm. And we saw what happened with them in 1997. So what about now? What are we learning about artificial intelligence and how we're going to be investing?

FARNOOSH TORABI: Well, I don't think it's really about the future, right? It's about what's happening right now. If you are banking somewhere or if you have a financial app that you're logging into every day, there's so many types of different fintech innovations. As we know, if you have a robo advisor, which has become quite ubiquitous in the financial services industry, you are engaging with AI to an extent, with machine learning, with technology.

And so it is here. I mean, when was the last time you used cash, right? You pay with your phone. It's like, the future is now. And I think it mirrors what we found in our survey. I partnered with Oracle. We interviewed about 9,000 consumers and business leaders. And they said, look, we're very comfortable with leaning into technology. We actually-- a majority trust a robot over a human to manage their finances.

I know that sounds a little frightening, but I think that what it really tells us is that robots are efficient. The science, the technology is efficient, especially in this area of our life, as we know, can be very emotional, right? We don't want to invest, or we make knee-jerk reactions to what we see on Yahoo Finance or other places. And we make high stakes decisions with our money based on temperament. And what the data can do for us and the science and the technology and these so-called robots is sort of eliminate that human weakness, frankly, when it comes to creating efficient portfolios and sound money plans.

Now, that said, in an ideal world, right, I think that the technology works hand in hand with humans. And I think this is a real opportunity for people who would have maybe not been interested in pursuing financial management or becoming a financial advisor because they don't like to deal with numbers. I'd say to these people, look, in the future or even perhaps now, you don't have to worry so much about the numbers.

Humans are such an important element of financial planning because of the emotional components I talked about. You would still need that person to walk you through your options, bounce ideas off of, give you objective advice, but it's still rooted in sort of human nature, right? And so I think that there's a lot of opportunity for individuals, people, to still be relevant and find new relevance in the financial industry going forward.

SEANA SMITH: I think a lot of people out there just breathed a little sigh of relief there from that answer.

FARNOOSH TORABI: Yeah.

SEANA SMITH: Farnoosh Torabi, great to speak with you again, personal finance expert and host of the "So Money" podcast.