I Asked ChatGPT To Explain Annuities Like I’m 12, Here’s What It Said
Written by
J. Arky
Edited by
Rebekah Evans
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Do you know what annuities are? Could you explain them in simple terms and accurately be able to demonstrate your knowledge of them in the real world? It’s okay if your answer is “no” because ChatGPT has the answer. More and more people who did not get degrees in business and finance are turning to artificial intelligence (AI) to better understand money.
While all the information and advice a program like ChatGPT might need a second look by a human professional who knows exactly what they are doing, it never hurts as a place to start better understanding the financial world in our modern era.
As an experiment, GOBankingRates asked ChatGPT to explain annuities as if they were speaking to a 12 year old. Below is what it came back with.
The Cookie Jar Example
To start, ChatGPT instructed that we have to imagine that an annuity is actually like a magic cookie jar, one that would distribute a cookie to use each month.
“You (or someone else, like your parents) put a bunch of cookies into the jar at the beginning,” ChatGPT explained, noting this deposit of cookies happened either all at once or little by little over time and drawing the connection that this is similar to putting money into an annuity.
ChatGPT went on to say that when you get “older (maybe when you retire or after a certain time), the jar starts giving you cookies — one at a time, maybe every month or every year.” This, the AI described, is what it’s like to have an annuity pay you money on a regular basis.
Two Main Parts to Annuities
Next, ChatGPT broke down that there are two main parts to an annuity: saving time and paying time, both of which linked back to the cookie jar analogy.
Saving time or “growing the cookies” was noted as a period where you put cookies in the jar or money into the account. Paying time or “eating the cookies” occurred as the jar began to give the cookies back to the cookie jar owner.
Two Main Kind of Annuities
Continuing with the breakdown and cookie jar metaphor, ChatGPT laid out that the two kinds of annuities that are often used are immediate annuities and deferred annuities.
“You put money in and the cookie jar starts giving you cookies right away,” explained ChatGPT of immediate, while adding that for deferred “You put money in, wait a while and get cookies later.”
It ended on another sweet example that if you save up candy you collect from trick-or-treating on Halloween, then only eat one piece every day, it will last a long time. “People like annuities because they help make sure you don’t run out of money (or cookies) when you’re older,” ChatGPT added.
Not bad for the first day of annuities class taught by an AI platform.
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