Study Reveals AI's Role in Holiday Overspending and Financial Strain

Festive season brings a lot of expenditures too, with average Americans spending $1,000 on gifts and other things during the holiday season. But data says that most people also go into debt because of their overspending, even after cutting back on some of their normal expenses. Overspending has become a real issue during the holiday season and many people plan on paying off their debt during the next year. A new paper published in ScienceDirect suggests that AI may contribute to overspending behavior. Researchers say that artificial intelligence can give poor financial advice, especially when it comes to online shopping. At the same time, they highlight AI's potential as a valuable tool for retailers and sellers integrating it into their businesses, showcasing both its risks and benefits.

Behavioral Economists have come up with a term called “Pain of Payment” which refers to the emotions we feel while spending our money. When we are buying things from cash, it requires more thought and decision making than spending money online through credit cards. In this digital era, it is not hard to buy things and we can do it as quickly as just a tap of our fingers. When paying online, we get disassociated and cannot feel the pain of payment, even if we do not have much monetary resources. When our pain of payment is not felt, we tend to spend more without any thoughts.

Researchers said that there are four main ways AI is reducing the friction associated with buying things and urging us to spend more. AI is managing our algorithm and making us buy things that we need or have thought about buying. It is also reducing bias and discrimination across all populations, no matter what the financial situation is. But on the other hand, it is also making financial inclusion harder for some groups. AI is also helping companies to personalize content for buyers, making buyers see things in their preferred prices, leading to more consumer spending. AI is also helpful to provide flexibility and automate spending decisions.

Researchers say that usage of AI during online shopping is a cause of concern, and it will affect how we think about spending our money. It can make people get distanced from healthy financial habits and may bring us deeper into financial debt. There is also a new trend going on about financial mindfulness books that can help people achieve peace through healthy money management.

Image: DIW-Aigen

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by Arooj Ahmed via Digital Information World