Many Gen Zs and millennials are turning to social media platforms like TikTok and Instagram for financial advice, before thinking of seeing a professional.
Tagged videos cover simple personal finance topics such as budgeting to more complex ones like taxes.
TikTok, no doubt, contains a vast pool of resources that people can use to gain financial enlightenment. Albeit it is also a notorious breeding ground for perpetuating financial myths and scams.
Its unrestricted access means anyone can set up an account and talk on any topic. In such a scenario, it is very easy to engage with quacks who have no real-life experience.
As a result, what users end up seeing often isn’t good advice from trusted sources. The consequences of having influencers dishing out financial advice are stark because there is a risk that they could make wrong investment choices or be a victim of pump and dump schemes, by giving tips that benefit their investments.
With so many people offering financial advice, it is hard to know who to trust online. Here are some tips you can use to sift the real experts from the quacks.
One of the things you have to identify early enough is if the content provider is an influencer, motivator, or an actual financial expert. An influencer peddles financial products or investments on behalf of a company or brand.
So an influencer will most likely tell you to invest in the rave of the moment like cryptos or tech stocks, without giving any fundamental reasons why you should invest in such assets.
An influencer's main aim is to monetize their services either by advertising brands, or selling financial products that (s)he has an interest in.
They are always trying to pitch you a product or sell a course with statements like, 'Check out my sales funnel, my course, my one-on-one consultations!' Some people claim, 'This is how you're gonna make 10x your money today!'.
As such the safety of your investment is not their priority, but how to gain more visibility online which they can monetize to brands.
Those who have achieved financial milestones and aim to use their experience to teach others how to achieve the same financial goal. These goals may be paying off student debt, starting a side business, paying off a mortgage within a short time, etc.
Motivators see themselves as crusaders trying to bring financial independence to their followers if they implement the strategy which they have outlined. Robert Kiyosaki can be described as a motivator as he uses his experience to teach personal finance to people.
Motivators sometimes morph into influencers when they have gained a large following.
The last category of finance content providers you see online are financial experts.
This may be those in active money management but are mostly comprised of former financial analysts or portfolio managers. Though they have left the field, they are leveraging social media to disseminate the knowledge they have gathered over the years.
Because they have been actively involved in actually managing other people's money through different scenarios and using different models, they tend to offer the most quality advice of the three categories. As such, this is the class of FinTok creators you should be looking out for.
While this is not a cut and dried method of uncovering a quack, comments to readers' posts offer insight into the depth of the creator's knowledge.
Sometimes a reference may need more explanation on a point, or ask a question based on his experience this is an opportunity for the FinTok creator to answer questions in depth. If your Fintok adviser is not answering questions in the comments section, chances are they don't know much about the subject.
It's an open secret that investing with a long-term horizon beats chasing short-term trends.
Any financial adviser that promotes get-rich-quick schemes like investing in meme stocks or dumping your savings into Dogecoin or other tokens that you have never heard of for a quick buck is not the type of person you should be taking advice from. This is exactly what influencers do.
Since investing is a long game, you would want to choose someone who has a long-term horizon in mind. Your adviser should be teaching you how to minimize risk, not embrace it for quick returns.
This is an obvious red flag.
Anyone teaching you how to invest by using their gains as a sales pitch to subscribe to their channel or invest in their product is most likely not legitimate. These people are not confident in their models or strategies, so resort to bragging about their 'gains' as a way to gain credibility.
For every risk, there is a reward.
However, you can blow up your capital if you do not manage your risk effectively. Seasoned investors know that the first step to preserving your capital is minimizing risk, not embracing risk. This is what would keep you invested for the long term.
However, due to the gamification of investing and the need to make their videos go viral, many FinTok creators encourage their viewers to invest in high-risk volatile assets for quick gains. This should be an obvious red flag for you.
It’s not foolish to use TikTok for financial advice.
But you can’t be gullible, either. While there are loads of incredible resources for financial education, there is also a ton of trash. Here's how to use Tiktok for financial advice.
Just because a lot of people watch the videos doesn’t mean they’re financially sound. All it means is that they’re interesting.
Understand that people would gravitate towards what they want to hear and many can't separate legit from fake. There are a plethora of stories of influencers that live fake lives.
Influencers are just focused on increasing their views, as such they choose trendy topics rather than the ones that would be most beneficial to their viewers. As such, just because someone has many followers does not mean they are legit.
Ironically, many people will consult Yelp before going to a new restaurant, or read reviews before buying a product but won’t do any research before investing their money.
It is expedient that you always check to see if the person recommending something is profiting from it. It is part of due diligence which every serious investor has to conduct before investing their money.
You shouldn't take what you see on Tiktok hook, line, and sinker.
You have to also explore more reliable sources of financial information. As such, your approach to financial advice on Tiktok should be like dipping a toe into water. Get comfortable with the topics, then go elsewhere to chart a path to financial freedom.
Don't give money directly to a TikTok creator, no matter how legit they seem.
Someone teaching you how to create wealth shouldn't need your money to teach you how. Creating wealth is like a skill and takes time to build.
As such, you have to be prepared to put in the work and constantly learn. There are loads of free resources online where you can get viable financial information from. (Including us!)
TikTok can either help or hurt your finances, depending on how you use it.
Because anyone can post on TikTok, there's no guarantee you'll get sound financial advice or that the person is competent to discuss personal finance.
The platform has gained notoriety for supporting volatile cryptocurrencies and activist investing; the network has fueled interest in Dogecoin, GameStop, and other risky assets without any fundamental basis.
Viral "FinTok" videos are reminiscent of the days before the internet when office workers received unsolicited faxes hawking the latest "get rich quick" penny stocks.
Furthermore, while some of the financial advice on TikTok may be correct, it is not one-size-fits-all counsel tailored to a person's specific financial needs.
Everyone's financial situation is unique, so you must think critically about what you're being marketed.
However, aside from the jokes and rocket emojis that some users are sharing, there is a variety of serious personal finance films that are teaching young people how to properly manage their money. The issue is locating a reliable content creator.
February 1, 2023
January 31, 2023
January 28, 2023