It can be challenging to know what moves are best when it comes to your finances, especially in the digital age, when advice—good and bad—is everywhere.
Personal finance, in particular, has recently become a hot topic on social media. The hashtag personal finance (written as #personalfinance) has been used on more than 1.7 million Instagram posts as of November 2021. And on the popular video service app TikTok, videos with that same hashtag have been viewed nearly 5 billion times.
With the growing interest, partially spurred by GameStop’s Reddit-fueled fame, comes the opportunity for people to share their money advice, be it great, bad, or downright awful. Not everyone is equipped to tell others what to do with their finances, even if they think they are. Here’s how to look out for yourself—and your bank account—and identify self-proclaimed gurus who still have a lot to learn.
Good Money Advice vs. Bad Money Advice
No matter where you get your financial advice, it’s important to take in how the advice makes you feel, according to Mykail James, the founder and CEO of Boujie Budgets, LLC, a financial literacy platform curated toward young professionals.
“Many ‘gurus’ thrive on messaging that makes consumers feel bad or stupid, and if the advice feels like that, it probably isn't good,” James said in an email to The Balance. “If the educator is not urging you to talk to a professional about your personal financial situation and using their advice as universal law, it's probably trash advice.”
|Good Advice||Bad Advice|
|Actionable steps to achieve goals||Skips steps or uses loopholes|
|Legal, lawful, follows the rules||Shady and skeptical practices|
|Has your best interest in mind||Uses your ignorance for their financial gain|
Cyndi Hall, CFP and paraplanner at Natalie Taylor Consulting Services, describes deciphering the good advice from the bad advice the same way you would decide whether or not money, say a $20 dollar bill in front of you, is real or fake.
“You study the real thing until even with your eyes closed you know what it looks like, feels like, and even smells like,” Hall told The Balance via email. “The same goes for good money advice. The more time you spend learning about what good advice looks like from credible sources, the easier it is to spot bad advice when on social media or anywhere else.”
Good financial advice has actionable steps to take, even if they feel hard to tackle at the moment. Say, for example, you need help paying off student loans and don’t know how the process works. Good financial advice would be to first find your loan balance, study your options for repayment plans, and then proceed to develop an action plan, including making decisions on things like whether or not you should consolidate your loans or make payments automatically.
If you’re skeptical of a tip you hear, use your instincts and double-check the information. Take a minute to verify those claims with a quick online search using credible sources, such as nonprofits or government entities.
“If you find something that strikes you as interesting, go to the source,” Hall said. “It's so important to know who is the face behind the advice. If it is good advice, it will often be well documented in recognized financial industry magazines, blogs, and podcasts.”
Signs You’re Getting Bad Money Advice
Bad money advice doesn’t always sound horrible at the time. To spot it before you fall for it, look out for these red flags.
You Can’t Find the Facts
Just because someone makes a wild money claim, doesn’t mean you should immediately follow their lead. On TikTok, for example, there are plenty of videos that start with phrases like, “This stock will make you rich,” or make other investing promises. Instead of diving headfirst and investing in a certain stock, do your research.
According to Mykail James, you should “always fact-check or ask a trusted professional.” The best advice is typically rooted in research and facts.
If there’s no way to tell if a money claim is true, you probably want to take a step back and avoid it. In addition to finding trusted online resources, consider reaching out to a licensed financial professional to clarify the claim.
Lack of Credentials
When listening to financial advice, such as a TikTok, on the best stock to invest in right now, it’s important to ask one key question: Do you know who’s giving this information to you?
The UK-based Financial Conduct Authority recently conducted research regarding the investing habits of younger individuals, stating that they get involved in higher-risk investments than generations before them. As a result of the research, they released a warning, noting the reliance on “contemporary media” for tips and news could have harmful effects. “These younger investors may have the lowest levels of financial resilience, making them more vulnerable to investment loss,” the warning said.
“True financial professionals lead with their credentials,” James said. “They will disclose if they are a registered financial advisor, counselor, or educator. If their social accounts do not show any signs, they are probably not worth listening to. Be very wary of those promising guaranteed returns or offering investing advice with no credentials.”
If you think you’ve found a fraud, you can report them to your state’s office of financial regulation.
There’s a Catch
According to an annual report from Influencer Marketing Hub, the influencer marketing industry has grown exponentially in recent years and is on track to grow to approximately $13.8 billion in 2021. In 2016—just five years ago—the industry was valued at $1.7 billion.
As more companies adopt the practice of bringing influencers into their strategy, there is a higher chance that these individuals could be getting paid by a company to share specific information, and the same goes for online financial experts. If you can, find out if the person you follow for advice on social media gets paid by companies to share money advice, and, ideally, what’s involved in that partnership. This is different for every influencer since there’s no set standard across the board. If your guru doesn’t have any public guidelines you can find, you have no idea if they’re working in your best interest (or against it).
Be very careful of experts who can’t tell you how they make their money, whether it’s through partnerships or investments. And step back from anyone who promises you will get rich if you pay them first.
When it comes to your personal investments, look for a financial fiduciary or a Certified Financial Planner (CFP), as these individuals are legally required to put their client’s interest first. And be aware that many financial professionals (including fiduciaries and CFPs) receive commission for the products you buy through them.
Fee-only financial advisors typically charge an hourly rate for their advice, so they may be potentially less biased. However, there are certain products you often can’t get through them, like life insurance, which you’ll probably need to buy through someone who receives a commission.
The Bottom Line
Social media and the internet can be great places to find solid money advice, especially as it pertains to your specific situation and if you know how to identify it. But that doesn’t mean everyone has your best interests in mind, or that everyone who wants to help has the background and experience to do so.
“If you take investing advice from someone who is not a licensed professional, they are not liable for your loss; they [face] no consequences if you lose your money,” James said. “Always remember that everything online is a suggestion, and your personal financial situation is going to be a major factor in how you save, invest, budget, and pay taxes.”
Instead of taking a hit, investigate. Make sure the sites you’re reading are factual, ethical, and research-based. If you can afford it, talk to a financial professional who has the background to give you personalized and strategy-based advice. But no matter what and no matter who you’re dealing with, make sure you’re comfortable, informed, and don’t feel unduly pressured to make an expensive decision.