Smart Money Podcast: Using AI to Budget and Save and Debit vs. Credit Card Pros and Cons

Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions. In this episode:

Learn how to use AI for help with budgeting and saving money, then learn whether credit cards or debit cards are safer.

This Week in Your Money: NerdWallet banking writer Chanelle Bessette joins hosts Sean Pyles and Sara Rathner to discuss how AI can be used to help with budgeting and saving money. They explore how AI chatbots can assist in creating a budget and setting savings goals, why it’s important to double check chatbots’ math and consider seeking official financial advice for more risky decisions. They also talk about the benefits of incorporating AI into money management and DIY projects by providing cost estimates and step-by-step instructions.

Today’s Money Question: NerdWallet writer Melissa Lamberina joins Sean and Sara to help answer a listener’s question about whether it’s safer to use a debit card or a credit card. She breaks down the differences in protections for credit and debit cards, including built-in safeguards and liability limits. They also explore the benefits of using credit cards and share their personal approaches to using credit and debit cards for daily transactions.

Check out this episode on your favorite podcast platform, including:

• Apple Podcasts

• Spotify

NerdWallet stories related to this episode:

Ask a Nerd: How Can I Use AI for Budgeting and Saving?

Age of AI: ChatGPT, Bard and How Money Advice Might Evolve

Why One Credit Card Nerd (Mostly) Doesn’t Use Credit Cards

Have a money question? Text or call us at 901-730-6373. Or you can email us at [email protected]. To hear previous episodes, go to the podcast homepage.

Episode transcript

This transcript as generated from podcast audio by an AI tool.

Sean Pyles:

Hey, Sara, how afraid are you of the inevitable AI takeover of the world?

Sara Rathner:

I think when the robot takeover comes, we all kind of just need to give in to our new overlords because we're powerless in the face of infinite information.

Sean Pyles:

I like that. It's like the radical acceptance approach.

Sara Rathner:

Yeah. If the zombie apocalypse comes, you want the zombies to get you immediately. You don't want to be the ones left over 20 years later fighting them with sticks.

Sean Pyles:

You want to be in the first wave. That's fair. Okay. Well, when it comes to AI, this episode, we are going to help our listeners use it to make managing their money a little bit easier. Welcome to NerdWallet's Smart Money Podcast, where you send us your money questions and we answer them with the help of our genius Nerds. I'm Sean Pyles.

Sara Rathner:

I'm Sara Rathner. So here's the part of the episode where we remind you to send us your money questions. Do you want to learn more about investing in index funds or how to fund a vacation on credit card points alone? You've got money questions and we've got money answers. So send us your questions.

Sean Pyles:

You can email a voice memo of your money question to [email protected] or leave a voicemail on the Nerd hotline at (901) 730-6373. That's (901) 730-NERD. You can also text your questions to that number or write an email to [email protected].

Sara Rathner:

This episode, we answer a listener's question about whether to use a debit or credit card and which one is safer. But before we get into that, we are inviting our robot overlords into the chat and we're inviting NerdWallet banking writer Chanelle Bessette, who recently wrote an article about how to use AI to help with budgeting and saving. Hey Chanelle.

Chanelle Bessette:

Hey Sara. Hey Sean.

Sean Pyles:

Chanelle, so earlier this year on Smart Money, we asked AI chatbots to answer some common personal finance questions, and the answers were a little lacking, but you found some creative ways to make AI more useful, particularly around budgeting and saving money. So starting with budgeting, how can folks use AI and these chatbots to get a better grip on their income and expenses?

Chanelle Bessette:

Yeah, something I learned during my research is that AI can help you work through the math of budgeting in a pretty painless way. If you prompt an AI chatbot to create a budget for you, it might ask you questions about how much you earn, what your savings goals are and when you'd like to meet those goals. Or if it doesn't, you can tell your input numbers, like your income and how often you get paid, then the AI can break down your goals into a weekly or a monthly plan so that you can know how much to save from each paycheck.

Sara Rathner:

That actually seems pretty cool, and it takes a lot of the math and work away from you, which I personally love. So can you describe how you had that conversation with the AI chatbot? How long did it take and what sorts of information did you ask for?

Chanelle Bessette:

Sure. The great thing about AI is that if it doesn't give you a great answer, you can start to formulate your questions in a different way and your prompts in a different way so that you can tell the AI exactly what it is you need. So you can tell it, help me set up a savings plan, and then it might spit out some general advice about maybe what percentage you should save or types of things you could save for. But the more specific you are, the more helpful the advice will be to you specifically. So if you say, I want to save $5,000 by the end of 2024, how can I do that? Then the AI might do the math for you, but it might also give you some other tips like increase your income or decrease your expenses, which is kind of the more generic and cliche kind of advice. But once you have that, you can ask it for more specific advice on what to do. So if you keep asking questions, it will eventually help you create a plan that's helpful to you and your money goals.

Sean Pyles:

Yeah. For those who haven't poked around with ChatGPT or other chatbots before, being specific is super important. I played around with ChatGPT a little bit before this conversation and I wanted to see what I got from a simple prompt. So I told it, tell me the best way to budget, and it gave me a list of 15 different steps for budgeting, starting with things like knowing your income and expenses all the way down to negotiating bills, and of course using technology to budget.

So then I tried to get just a little more specific and I asked it, what's the best budgeting format for beginners? And then the thing is it told me basically the same information, but it started with for beginners, simplicity is key, and then it had a list of 12 items instead of 15. It still felt a little bit complicated, and if I could go back and if I spent more time on it, I would probably say, what's the best way to budget for a specific goal? The more precise you can be to what you want out of a budget, the better these tools will be to help you.

Sara Rathner:

Yeah, I'm still a little skeptical about how reliable these AI chatbots are, and obviously it depends a lot on the information you feed into it, but a lot of the advice they give is very general.

Chanelle Bessette:

Yes, definitely. It's really important to know how to create the right prompts, and sometimes you have to dig a little bit to really get into it. And the other thing too is that when it starts feeding you numbers, then you might want to double check the math because AI chatbots aren't always perfectly accurate. Like Sara, you just said, they're largely based on whatever information is feeding the chatbot, and for most chatbots, it's kind of just getting its information from the internet, which can be great, but it can also be flawed. If you want to make an official financial plan, and if you really want to make maybe some kind of bold or potentially risky move with your finances, it's a really good idea to get more specified or official advice from a certified financial planner.

Sean Pyles:

Totally. And the catch with using one of these chatbots for budgeting is that you can't exactly reference the chat and the info that it gives you later on unless you print it out or something because the chatbot isn't going to store your information. Compare that with a regular budgeting app, it'll save your information so you can see it whenever you'd like. The chatbot is more for general principles, maybe a one-time snapshot of your budget and a potential financial plan.

Chanelle Bessette:

Yes, that's true. Some AI chatbots allow you to create an account and that allows you to kind of maintain your history with the chatbot so you can scroll back and kind of see what you talked about and get that specific info again. But if you do want to save the advice or maybe not have to search for it, if you forget maybe which chat thread with your bot it was in, then it could be a really good idea to copy and paste that text or just screenshot the text for later reference.

Sara Rathner:

Yeah, got you. So it could be really helpful just to talk through your budget, but you might have to keep in mind that it's just a one-off conversation potentially, unless you do the extra work of saving that conversation.

Chanelle Bessette:

Right.

Sara Rathner:

So let's turn now to how AI can help us save money. In your article, you talk about how you used an AI chatbot to help you get creative with your groceries. Can you tell us about that?

Chanelle Bessette:

Yeah, so I tested out some advice that a source told me for the article. She said that AI bots can be great for saving money on food, and she gave me this really great trick that you can use. You can tell the chatbot what ingredients you have at home, maybe some kind of leftovers or maybe you bought an item that you use for one recipe and you're not really sure what to use it for in the future when you have all the extra leftover. So you can input those items into a chatbot and it can create recipes for you out of those ingredients. So for example, if you're going through your pantry or fridge and you see a bunch of random items like beans, eggs, leftover roasted veggies, hot sauce, you can put those into an AI chatbot and it'll tell you some ingredients that you can make.

So I did that as kind of an example for getting this podcast episode ready. With those ingredients when I entered it into a chatbot, it told me, hey, you can make a frittata or chili or a burrito bowl. And then if you want to get more creative, maybe you don't have the ingredients fully for one of those items. It could tell you just a few additional ingredients that you can buy from the store just to round it out. At the end of the day, it's like a really great way to reduce food waste and to save money by not buying a ton of new groceries.

Sara Rathner:

I love that. I love kind of shopping my own kitchen before I go to the grocery store and whatever I can cobble together with some cans and maybe some chicken I have in the freezer is awesome. So I love that. That's a great way to spend less at the grocery store every week and also just use up what you’ve already paid for. So thumbs up to that. So it seems like you can ask an AI chatbot for help with just about any aspect of home and life maintenance, which I love because it allows you to pass the labor of list making onto something else, which those of you listening to this, you know how much labor there is just in making a list, a to-do list, a grocery list, a packing list. So allowing a little robot to do that for you can save you a lot of time and potentially a lot of money as well.

But there might be a little bit of a potential downside to maybe using AI to help guide you through a DIY project. Sometimes I wonder if the effort is worth the money saved. So let's say you wanted to install a new light fixture in your kitchen. Do you think an AI chatbot could give you a breakdown of how much it might cost to have somebody else install that, a professional, versus the amount of time it would take for you to do that yourself?

Chanelle Bessette:

Right. So I feel like this is a question that folks might try to just Google or whatever search engine engine of your choice, you can look that up and you'll get a lot of results, but an AI chatbot I feel can cut to the quick on that question and help you get information faster and more specifically to whatever it is you're prompting it. You could ask the AI things like what's the average cost of installing a new light fixture? Or if you are looking into DIYing it, you could say, how to install a new light fixture. So those kinds of prompts can help give you an idea of prices for different options or Sara, like you mentioned a moment ago, it might create a list of steps, for example, for how to install that light fixture. So if you're kind of just doing some research and trying to figure out what the initial costs upfront might be for DIY versus a professional, then that's great.

But something else that's really great about AI is that you can get more location specific, so you can use AI to ask things like, who are the most affordable contractors in my city? That could be really helpful because it might pull things like maybe the top-rated contractors from a review site, or it might just look at the search results and see which one comes up first, and maybe that's the one that's considered the best in the area. But the only problem is that AI, like we've talked about, is usually limited to information that's publicly available on the internet. If certain information doesn't exist online, that means you could be missing out on information that you could have gotten in other ways, like by calling around to contractors to get project quotes, which they probably would not have on their website because it's specific to your project.

Sean Pyles:

Right. So it's like a trust but verify thing with these chatbots. But they can be good for getting an initial list of what contractors you might want to call for quotes.

Chanelle Bessette:

Right. So I think it's good as maybe a jumping off point for most cases. Sometimes you might get lucky and get some really great information that gives you the ability to act and save money, but it's really good to double check and make sure that you are getting the best deal or that you are working with the best contractor or even that you're finding the best DIY information.

Sean Pyles:

Okay. Well, Chanelle, do you have any final tips for those who are hoping to incorporate AI into their money management and maybe DIY projects?

Chanelle Bessette:

Sure. So AI is in general just really fun to play around with. There's so much you can use it for when it comes to your finances. Apart from everything we talked about today, you can also use it as a great place to educate yourself on different financial terms and products. If you hear something you don't know about, you can say to the chatbot like, hey, describe a Roth IRA to me, or what's the general advice on saving for retirement? Or things like that. That's really useful. And it can also give you tailored suggestions for ways to save money in so many different areas. So clothes, food, housing. Or you can ask things like, how can I throw a birthday party without spending a lot of money? The potential is really just endless. Just don't forget that AI is only as good as the information it's pulling from. So there can sometimes be mistakes. So just make sure to double check the information if you're thinking about making any big changes.

Sean Pyles:

Well, Chanelle, thanks so much for talking with us.

Chanelle Bessette:

Yes, thank you for having me.

Sara Rathner:

That's all for our This Week In Your Money segment. This episode's Money Question segment is coming up next. Stay with us.

Sean Pyles:

This episode's Money Question comes from a listener's email. Here it is. Hello Nerds. I recently found suspicious charges on my personal banking statement that adds up to almost a thousand dollars. While my bank is investigating and has credited my money back into my account, I can't help but feel violated as it was my debit card that was hacked without ever being lost or stolen. Could you explain how and if credit cards are safer for daily transactions compared to debit cards? What can people do to prevent fraudulent charges on their accounts besides staying away from shady vendors? Thank you for your help.

Sara Rathner:

To help us answer our listener's question, on this episode of the podcast, we're joined by NerdWallet writer Melissa Lambarena. Welcome, Melissa.

Melissa Lambarena:

Happy to be here.

Sean Pyles:

Hey, Melissa. So let's start by taking the listener's question head on. Debit cards and credit cards are both vulnerable to the same types of fraud, but instances of fraud on your credit card might be easier to deal with than if your debit card is hacked. Melissa, can you talk about protections that credit cards have that debit cards do not have?

Melissa Lambarena:

Of course, I sympathize with our listener. I've also experienced this in the past. This type of situation can leave you feeling very uneasy, and it's an unfortunate disruption that people continue to encounter whether they use debit or credit. But the headaches and liability could be less if you can use a credit card for most of your purchases and pay it off in full every month to avoid the interest charges. Different protections apply depending on whether you use debit or credit. For debit cards, the Electronic Funds Transfer Act gives you up to 60 days to report an unauthorized transaction. Otherwise, you'll lose the money that was taken.

Depending on how quickly you act, your liability could be less. If the card is in your possession, you're not liable for the charges if you report it within 60 days. Report it within two days and your liability is limited to $50. Within 60 days, your liability could be limited to $500. So you can see how the charges can get out of hand if you fail to act quickly. Think about it, you're already missing funds in your account, and on top of that, you might have to potentially pay a maximum of $500 if you don't report it within the necessary window.

Sara Rathner:

And what about credit card protections? How is it different in terms of reporting deadlines and liability for people whose credit card accounts have been hacked?

Melissa Lambarena:

There are more protections for credit cards. With credit cards, there's less of a liability. Under the Fair Credit Billing Act, your maximum liability is $50. If you physically have the card with you and someone steals the account information to make purchases, you generally have no liability. Some credit card issuers also promise zero liability for all fraudulent transactions, so you could be entirely off the hook. This is why it's so important to review your debit and credit card statements regularly so that you can spot unauthorized transactions and report them quickly.

Sean Pyles:

Okay, so with a debit card, you could face a maximum liability of $500. With a credit card, it would be a fraction of that, $50. So really big difference there. But that said, there are plenty of people who prefer to use debit cards over credit cards. How can folks in this category protect themselves from fraud?

Melissa Lambarena:

They can only shop with the merchants that they recognize. They can carry cash in case they feel uncomfortable using a debit card at a terminal or place of business. It's also critical to review their statement regularly for unauthorized transactions and setting up text alerts can also be helpful so that you're notified about transactions or withdrawals of a certain amount. And then there's overdraft protection that can also become tricky in the event of fraud. You want to turn off overdraft protection to prevent an unauthorized transaction from draining a linked savings account. Or you have another option. You can keep two savings accounts, the one that is linked for overdraft protection with fewer funds and one at a separate institution that holds most of your money.

Sean Pyles:

Okay. So it seems like the advice is to set up as many guardrails as you can where you're shopping, and then hopefully make it so that your bank can let you know if something does come up. And also just monitor your account regularly so you see if something does happen, you can catch it really quickly.

Melissa Lambarena:

Definitely.

Sara Rathner:

Are there different types of protections for different kinds of purchases, like online purchases versus purchases in stores?

Melissa Lambarena:

For credit cards, there can be additional safeguards in place for online transactions. For instance, some credit card issuers provide virtual account numbers to make online transactions safer. Some also offer purchase protection as a benefit. It's like a type of insurance that covers an item that is damaged or stolen.

Sean Pyles:

Okay. So there are lots of other benefits of using credit cards versus debit cards, like credit cards allow you to build credit. It's a really big thing for a lot of people. Can you talk about some of these other benefits?

Melissa Lambarena:

Yes, it is one of the easiest tools to build credit, but it's important to understand that this payment method isn't a match for everyone, especially if they're impulsive with spending or can't pay off the balance in full every month to avoid the interest charges. After all, studies have shown that people tend to spend more when they use credit cards compared to cash. If you can manage a credit card responsibly and stay within budget though, you'll get those added protections and possibly helpful features to safeguard your transactions. You might even get rewards that can offer value on everyday purchases. You can use those to further your goals, whether that's increasing your emergency fund or defraying the cost of everyday purchases or travel.

Sean Pyles:

Okay. So this listener's question is fairly straightforward, which is something we don't often have on the podcast. It's kind of nice to have a simple answer of credit cards have more protections for you, they help you build your credit. With debit cards, you might be on the hook because the liability limit is higher. But I would love to hear how each of us manages the decision between using credit cards or debit cards in our day-to-day shopping. So Melissa, how do you think about this?

Melissa Lambarena:

Well, after dealing with debit card fraud many years ago, I only use debit for those few purchases that don't accept credit. I use credit cards whenever I can to earn rewards.

Sara Rathner:

I pretty much never use my debit card unless I am making a purchase at a place where there is an additional fee for using a credit card. Sometimes you see a two and a half or 3% fee. But I have had my credit card hacked multiple times on multiple different credit cards. I have found fraudulent charges, and they are hard to spot because in the instance of my own fraud, it was a couple of dollars here, a couple of dollars there. So it's really important to check your statements for those things.

Sean Pyles:

I'm like you guys. I use my credit card for 99.99% of purchases. I can't even tell you the last time I did use my debit card. But I'll typically only use it if I'm at a discount grocery store. There's one in the Portland area that doesn't accept anything but debit. So I have to use it in that circumstance. But that said, I have a credit card that gives me some good cash back points when I use it at a grocery store. So I tend to shop at places that give me rewards and also have me on the hook for less fraud if that does happen. So I am team credit cards all the way in my day-to-day spending.

Sara Rathner:

So the listener asks how people can prevent fraud on their account besides staying away from shady vendors. So my question for you is, how do you know when a vendor is shady? And you mentioned something a little bit earlier about virtual credit card numbers to use online. Could you talk about how that can help keep you safe?

Melissa Lambarena:

Of course. When you're exploring whether a vendor is legitimate, you want to look at the website first for any red flags. You also want to explore or do a Google search to see if they have any complaints against them. There's the Better Business Bureau, the Consumer Financial Protection Bureau as well to look at. And then you want to look at consumer reviews to see whether the vendor fulfills their purchases. But even then, if you're just not sure, it's a new vendor, you don't fully trust the process, there are other ways that you can potentially go around that. Some credit card issuers offer virtual card numbers, and these are temporary numbers that you can use for online transactions to prevent someone from having your actual credit card number. And this can prevent fraud and make your transaction safer. But also, if you don't have that option, you can try seeing if you can pay through a third party like PayPal or another option.

Sean Pyles:

All right, well, Melissa, thank you so much for coming on and talking with us.

Melissa Lambarena:

Of course. It's a pleasure.

Sean Pyles:

And that is all we have for this episode. If you have a money question of your own, turn to the Nerds and call or text us your questions at (901) 730-6373. That's (901) 730-NERD. You can also email us at [email protected]. Visit nerdwallet.com/podcast for more info on this episode. And remember to follow, rate and review us wherever you're getting this podcast. This episode was produced by me, Sean Pyles. We had editing help from Liz Weston and Tess Vigeland, Kevin Tidmarsh and Kaely Monahan mixed our audio, and a big thank you to NerdWallet's editors for all their help.

Sara Rathner:

And here's our brief disclaimer. We're not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.

Sean Pyles: