As we enter a future dominated by algorithms, does big data only matter to major financial institutions? Or is there some way to tap its potential on a personal level and boost our financial management?
The influence of algorithms can be felt everywhere in our lives, and it only grows by the day. As we develop new and better technology, our ability to track data points increases, and so does the incentive to do so. This positive feedback loop is strongly evidenced in the realm of finance. Hundreds of millions of transactions are processed daily. Each one serves as a data event, and the more of those you aggregate, the higher the quality of your analytics and data-driven decision outcomes.
Yet the combination of big data’s sheer volume and general lack of transparency tends to make it useful only to the big industry players. Is there anything we can do on an individual level to make the data revolution improve our personal finance practices?
Sorting through information
Now that we spend so much of our time online, we’re also inundated with information. This is particularly true of financial management. You’ll find no shortage of practical tips, dos, and don’ts, and life hacks that promise to ease your money worries.
But which advice works, and which doesn’t? Even without access to data gathering and analysis tools, you can benefit from reputable sources that release relevant figures.
The FINRA Foundation’s National Financial Capability Study is a good starting point. It helps to put financial challenges in the perspective of the economy and demographic trends. This information lets you boil things down to factors you can’t immediately control, such as education level or growing inequality, and focus on areas where you can make a difference.
Sometimes, data crunched by others also helps to filter through the noise of financial advice. Analysis has debunked the value of skipping the Starbucks latte for most people while emphasizing the potential savings from cutting the cable or switching to smaller wireless carriers.
Lightening the burden
People can often be mistrustful of big data because it’s associated with negative portrayals in the media or popular culture. Real-life news stories have also documented how our data can be misused. The Cambridge Analytica scandal is one high-profile example.
The potential for abuse shouldn’t detract from the fact that in the right hands, big data leads to superior decision-making. And financial institutions, as previously noted, tend to be the biggest beneficiaries of that analytical power.
When you get an insurance plan these days, you’re not just covering your bases for the future. You’re also putting your money in the hands of a fund manager with far more information than you could ever access, resulting in better growth potential.
Sometimes, it’s as simple as leaving investment decisions in the hands of an institution you can trust, thereby lightening your own cognitive burden.
Knowing the rules
Of course, despite the vast scale of their data operations, financial institutions aren’t immune to bias. They use algorithms that learn from existing data sets, fed to them by humans. Both the data set used and the human trainer can be potential sources of bias.
This is a problem when algorithms are used to determine your credit score, which can affect your access to improving your situation. Agencies like Equifax and Experian have been scoring creditworthiness for decades, but the resulting risk management decisions were always handled with human judgment.
The flip side is that if you know how an algorithm works, you can also take definitive action to make it view you in a more positive light. Opening accounts visible to credit bureaus, paying bills on time, and keeping a low debt balance over time are some steps towards playing better by the AI rules.
Fighting for more
The data revolution promises much, but it’s also in a fledgling state. There’s a lot of inequality in terms of data is collected and who gets access to it, ultimately wielding its power.
The individual might be just one drop in an ocean of data points. But we’re also the generators of that data. We should own and control it, but that’s not how things work right now.
Currently, your data is being harvested unobtrusively. It can happen with or without your consent but invariably without any compensation going your way. Yet companies pay to know you and target you, while others make a fortune selling that information.
Wouldn’t it be great if you could access that same dataset to find out more about your spending habits and make better decisions? Why should your data be accessible only to companies with a vested interest in making you spend even more?
Those who make data-driven decisions tend to be winners. And in this world, you’re a vital stakeholder. Fight for your right to ownership and control of your data, and in the long term, you may get to use those insights directly to manage your personal finances better.