Financial Advice on Social Media – Due Diligence Required
The Alarming Truth About Financial Advice on Social Media Sites
Social media has become an integral part of our daily lives, connecting us to friends, family and like-minded people around the world. However, the financial advice you see promoted on these platforms should be taken with a grain of salt. Here are some dangers to keep in mind:
Lack of credentials: Many of the people giving financial advice on social media lack proper credentials and certification. They may have good intentions, but without formal training in finance, accounting or investing, their tips could be misguided.
Biased information: Social media “gurus” often promote the strategies and products that will make them money, not necessarily what’s best for you. They have an incentive to push certain investments or services, even if they aren’t the most suitable for your situation.
Overgeneralized tips: A lot of the financial advice you see on social media consists of broad, oversimplified tips that don’t consider your unique financial needs and goals. What works for one person may not work for another.
Lack of accountability: People sharing financial tips on social media are not accountable if their advice fails to pan out. There is little recourse if you follow their strategies and lose money as a result.
In short, while you may come across some useful nuggets of wisdom on social platforms, don’t base your important financial decisions primarily on the advice of social media “influencers. Consult trusted sources like certified financial planners and reputable financial websites to get advice tailored to your specific needs and goals. Proceed with caution when taking any tips from social media, and do your own research before acting on them.
Popularity doesn’t necessarily mean that a social media influencer knows what they are talking about.
LendingTree’s recent survey found that 41% of Gen Zers used social media to get financial advice within the past month. In fact, hashtags such as #FinTok and #Money are viewed hundreds of millions of times each. These videos are often too small to offer any real value. Sometimes, even comically, it is not. Many times, the “expert” is just an influencer who has a large following and provides no financial advice. Let’s take a look at some bad advice and learn how to distinguish the good from the poor.
Although financial professionals don’t need to learn Tik-Tok moves, industry leaders should not discount the latest wave of financial advice on social media. The country’s youngest generation of investors are more likely to turn to the platforms that they’re most familiar to make important financial decisions, especially when it comes to investment.
New Morning Consult polling was done to understand how Americans consume financial advice, including retirement and investment advice. It found that, while significant shares of young adults are using social media for advice, but these young investors are actively looking for traditional and professional sources for financial management.
Advice from social media offers all kinds of poor financial advice
Social media is a great place to find financial information and advice, but it can also be a risky place to get financial advice. People tend to post the most positive things about their financial situations on social media, and this can lead to unrealistic expectations that can be difficult to meet in the real world. This can make people less likely to start saving, for example, because they think it’s going to be easy.
Keeping an eye out for dangerously unrealistic posts is one way to avoid getting bad financial advice on social media. Another way is to seek out professionals who have a good reputation for providing sound financial advice. Many reputable financial advisors use social media, so when looking at someone’s credentials, make sure they have both education and experience in the field they are trying to help you with.
Social media’s best feature is its ability to break down complex topics into simple videos, which are often less than 60 seconds in length. It’s difficult to know when advice is wrong without doing your research. Here are some examples of poor financial advice that you might find on social media.
You don’t usually find top financial advisors on social media giving free advice
One video shows that candy machines can be used to make passive income. The video does not show that this side hustle can be passive. Machines require ongoing maintenance and you cannot set up shop on the property of others without their permission. This severely limits how many machines you can install in a safe location.
This can limit your ability to make a lot of money in a business that isn’t making much money (revenue from coins-based machines is approximately a few dollars per day).
A promotional video shows how to pick the right stocks to make your investment “go from $200 to $50,000”. The rationale behind buying stocks is based on superficial assumptions. For example, buying Zillow shares to get low mortgage interest rates. However, the clip’s financial rep points out that the information regarding mortgage rates isn’t new and has been baked into the stock price.
Another video doesn’t reveal much about the company’s past, balance sheet or amount of debt. Past performance has never been a guarantee of future results.
Financial advice on social media often is flat-out wrong
This video explains that you should only get paid in Bitcoin because “who is going to get your money?” The IRS is cracking down on cryptocurrency and has hired outside contractors to help identify investors who have incorrect or omitted cryptocurrency transactions data from their tax returns. You could face criminal prosecution if you follow this advice.
Youngest generation of investors are targets for these scams
Problem is, a lot of these videos are created by untrained influencers who are motivated more by following and likes than by being right. Bad advice can be dismissed if they are wrong. Many social media creators use this disclaimer. If you’re looking for advice from social media, ask yourself these questions:
Are they able to verify their credentials? Be skeptical if an influencer’s bio does not state that they are a certified financial planner (CFP), a certified public accountant (CPA), registered investment advisor (RIA) or a certified financial adviser. Many financial advisors using social media are reputable and licensed.
Are they trying to sell you something or are they just trying to get your attention? Remember that influencers might be trying to sell you something, such as a stock or product where they get a commission if you buy.
Is it too good to be true? It’s impossible to predict the future performance of stocks, and even if they could, they wouldn’t share it with millions of social media users. Do not listen to “get rich quick” investing advice. We can’t emphasize enough, when taking advice from social media, do your due diligence.
Who Are Personal Finance Influencers?
Can you verify this? You can’t always verify the popularity of an influencer. However, that doesn’t necessarily mean that the advice they are giving is accurate. Before you act on any financial advice in a 60 second video, it is important to do your research, and do it very carefully.
We’re not saying that all financial advice on social media is bad. Our sole intent is to make sure you do your due diligence before you buy. A lot of influencers earn a commission as an affiliate if someone buys the product or investment. Some of the top financial advisors you run across on social media advertise their services there, and it’s usually easy to see they’re not just an influencer. Our recommendation is to get financial advice from an experienced and licensed professional.
Financial Literacy Prevails
If you need accounting or tax advice, you can meet with a CPA, an Enrolled Agent, but check them out as well. Usually if you need financial or investing advice, a Certified Financial Planner (CFP) is a good place to start. Be advised as well that a CFP can earn their income using the flat fee method or a sales commission from the purchase and sale of stock or mutual funds. Do your due diligence when seeking financial advice on social media.
- Is Alimony Taxable? Unraveling the Tax Rules for Spousal Support - January 17, 2024
- Mastering How to Do Your Own Taxes: A Step-by-Step Guide - January 10, 2024
- 5 Reasons Why Filing Taxes Online is the Smarter Choice for Every Taxpayer - January 3, 2024