How To Avoid Bad Money Advice On TikTok – Forbes Advisor
From learning the shuffle dance to 60-second comedy skits, you can find video content for nearly anything on TikTok—including how to manage your finances.
As one of the most popular apps on earth, TikTok has become a compendium of money management tips. The hashtag #personalfinance currently clocks in at 4.2 billion views while #personalfinancetips has 30.3 million views.
Unfortunately, billions of views doesn’t add up to good advice.
TikTok can be credited with prompting young people to think critically about money. It’s a tough demographic to crack when it comes to the starchy, unsexy subject of financial literacy. Realistic videos about how far you can stretch an $80,000 salary in New York City are good conversation starters; an explainer on how to request an itemized medical bill are a solid starting point for coping with crushing medical debt.
The problem is that more nuanced advice starts to get dicey. Day traders boast about copying stock trades of famous people; celebrities talk about refinancing their million-dollar homes to make a profit. For newbies, it can be hard to separate which advice is relevant to them from the stuff that’s way out of their league.
6 Tips for Browsing Personal Finance TikTok
If you’re just getting started managing your own personal finances, indulging in bad or irrelevant advice could mean taking years—or a lifetime—to undo the damage.
Here are five tips to keep in mind as you scroll through the “For You” tab. We offer expert advice that can arm you with knowledge to differentiate good money advice from the bad.
1. Check Out a TikTok Creator’s Credentials First
The internet is rife with amateur experts. When it comes to TikTok, it’s especially hard to decipher the identity of who’s giving you financial advice. And our investigation suggests that most of the biggest TikTok personal finance influencers don’t have any real financial credentials.
There is no requirement to be credentialed to give personal finance tips. But financial regulators and certifying bodies usually require individuals to pass certification courses, and require them to be renewed on a regular basis—meaning their knowledge meets required standards, and can be backed up with facts.
For example, a certified financial planner (CFP) has completed coursework and passed in-depth tests on subject areas such as risk management and insurance planning, tax planning, education planning and more. CFPs must also hold a bachelor’s degree or higher (in any discipline) from an accredited college or university. Similar designations include certified public accountants (CPAs) and chartered financial analysts (CFAs).
Listening to advice from people who aren’t credentialed is always bad, but it does mean you should treat it with extreme caution, and always double-check it yourself before taking any actions.
Some of the most popular personal finance influencers on TikTok aren’t certified financial professionals; Tori Dunlap, known as @herfirst100k, has 1.5 million users on the platform. She’s not a financial adviser (and the fine print on her website explicitly says so), but she does give legitimate tips on topics like salary negotiation.
2. Context is Everything
George Blount, a behavioral economist and founder of nBalance Financial in Boston, says listening to others talk about what worked for them can be a good way to know if you’re on track with your own approach.
“If you take it as ‘that’s a great example and I needed some validation or verification that my approach was working,’ then it’s OK to use that,” says Blount. “But if it’s your first foray and you’re looking for a matter of discovery, that’s really difficult because then you’re basing the entire experience on somebody else’s perception and vision.”
Blount describes most of the personal finance content he’s seen on TikTok as “very self-centered advice.” What TikTok advice lacks, he says, is the context that most financial professionals use to help clients understand products or strategies, and how they will relate directly to their unique situation and impact them over time.
Take how you’d explain stocks and dividends to a football fan: Blount would describe regular stocks as a touchdown and dividend stocks as a touchdown with an extra point. “Context is important, and so is explaining the nuances [of financial products] to individuals,” he says.
Before taking someone’s catchy one-minute video about the best retirement account to heart, take a look at who they are, first. Do they list a credential anywhere in their bio? Do they have a website that tells more about them? If their story consists of “this is what worked for me,” take it as a starting point for you to do your own research into the topic—not as a one-size fits all tip.
3. Beware of Day Traders
Day trading is not a game. It involves time, effort, risk management and a ton of knowledge to reliably make profits. Most financial professionals warn clients to stay well away from day trading and invest in long-term strategies instead, where risk is lower and their money is safer.
The problem is that day traders have taken over social media, especially with the rise of commission-free online brokers like Robinhood. They’ve even caught the eye of lawmakers and billionaires after rallying behind underdog stocks like GameStop or sending cryptocurrencies “to the moon.”
TikTok is rife with day traders, and you need to steer clear of them.
The hashtag #investing on TikTok has 2.5 billion views; #investingforbeginners has 101 million. A Twitter account named TikTokInvestors has nearly 115,000 followers, and tweets out some of the most popular investing TikToks. The account’s bio reads “not financial advice.”
Nevertheless, there are plenty of videos with titles like “How to invest $5,000,” or stories about how creators made boatloads of money in a day or two. For beginners, that advice can sound tempting—but more often than not it’s very far from practical, long-term investing advice that would be more appropriate for a new investor.
“The world of financial advice needs to be measured by a very strict standard, which is the fiduciary standard,” says Chloe Wohlforth, CFP, managing director at Angeles Wealth Management. “The issue that I see with day traders giving stock picks out on TikTok is they would never know what is in the best interest of that person consuming the information. It’s one thing to talk about an idea, but it’s another thing to give someone an idea and encourage an action.”
A major component of a solid investing strategy is knowing how much risk the investor is willing to tolerate on their investments. Wohlforth points out that a creator on TikTok has no idea the risk tolerance of any individual viewers; as of August 2020, the app had been downloaded about 2 billion times globally, and there were 500 million TikTok users in the United States alone. There’s no way investing content could ever be personalized for each viewer.
Andrew Wang, financial advisor and managing partner at Runnymede Capital Management in Mendham, NJ, adds that users should also be thinking about what type of stocks are being recommended to them (Wang has his own small TikTok account where he occasionally posts videos of him singing and speaking about general personal finance concepts).
“You have to think about who’s actually benefiting from the advice: You or the creator?” Wang says. “If it’s a penny stock with very little trading volume, that just becomes a potential vehicle for pump and dump, which is illegal. Those are some red flags that should be going off.”
4. Keep On the Lookout for #Ads
One pitfall of any social media app is how hard it can be for users to differentiate regular content from paid content. The latter happens when the creator receives payment to mention a specific service or product.
Paid content TikTok videos are just advertisements in disguise, blurring the line between a creator who genuinely wants to help viewers and one who’s focused on selling a product for money.
Content creators engaging in best practices are usually expected by an industry standard of including a disclaimer that their video is an ad, whether it be in the actual video or by using the hashtag #Ad. But they don’t always do that.
On TikTok, financial products are sometimes presented as “get rich” strategies. TikTok content creator Curtis Ray, for example, has over one million followers and frequently posts videos advising his viewers to replace their traditional retirement plans with something called a maximum premium indexing (MPI) account. Ray’s financial services company, SunCor Financial, sells MPIs.
What isn’t made clear in Ray’s TikTok videos is that MPIs are essentially indexed universal life insurance policies (IULs)—intricate financial products many experts recommend against, and that may come with exorbitant fees.
“The issue that most people don’t understand is they’re comparing what I do with the MPI system with a traditional IUL—MPI is an innovative version of IUL,” Ray says. “I call it the ‘IUL 2.0.’”
Most financial experts say IULs are sold dishonestly with deceptive marketing techniques, especially since they’re exempt from federal regulation under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act—meaning they’re not regulated by the U.S. Securities and Exchange Commission (SEC).
This is when taking a step back to do your own research will benefit you, says Wang.
“If they’re mentioning a specific product in the video, you can Google the product to understand what it is,” Wang says. He adds that if a creator is talking about some type of insurance policy, it’s likely a “commissioned product,” meaning the creator will receive money every time someone signs up for it. That’s when the line between the creator wanting to provide helpful advice, or make money off of users, can easily get blurred.
Some content creators could also get paid to mention or showcase specific apps in their videos. In this case, they could be recommending a costly tool so they can make money every time one of their users signs up through their link on their page. Do your own research on any apps being mentioned on TikTok before paying to sign up for them.
5. Just Because They’re a Celebrity Doesn’t Mean They’re Right
TikTok is full of celebrities and influencers. And some are even giving money management advice or tips—but their advice often is not relatable to the general public.
Retired baseball player-turned-businessman Alex Rodriguez, also known as A-Rod, recently posted some money advice on his TikTok. One of his videos detailed how he made a $600,000 profit after refinancing a home and then selling it for $1.5 million. The video garnered over 100,000 likes.
Not everyone found the advice helpful. “Not everyone has 1.5 million dollars to invest. How about you make it more relatable to the middle class,” read one comment. “Why is the upper class or people with wealth trying to tell people who are not wealthy howcto [sic] invest a large amount of money!!!” read another.
Then there are the creators who are copying the trading strategies of the ultra rich. TikTok CeoWatchList, which has nearly 700,000 followers, posts videos that document the stock and crypto strategies pursued by wealthy and famous people.
The creator says he “made a ton of money” by imitating the stock trades of prominent people, such as Nancy Pelosi. But viewers should be careful with copy-cat trading just because they see someone else making money from them. There’s no guarantee that a famous person’s stock picks will rise, and they probably have a very different level of risk tolerance than you do.
Risk tolerance is key. For instance, a very rich person could watch a $20,000 investment lose half its value without worrying too much about it. Since they have plenty of other sources of wealth, they can wait for that particular portfolio to regain its losses. If it doesn’t rise again, no biggie, that’s the price of admission. This sort of tolerance for losses is not available for regular folks, who need to pursue much more cautious, balanced investment strategies.
“There are a lot of factors that an individual or influencer had access to that the normal investor, or the average person, didn’t,” says Catherine Miller, CFP and wealth advisor with Bartlett Wealth Management “It’s not going to be applicable to their financial situation. Understanding that celebrity status does not give credibility necessarily to speak on investment matters, real estate matters and more complex business transactions—it’s important for people to realize that.”
6. Do Your Own Research
Most of the financial professionals interviewed for this story agreed on the value of TikTok being an educational space. Wohlforth, for example, could see TikTok being useful as “a soundbite of information rather than picking up a 200-page book,” but adds that users should be responsible and do their own research on any information they consume on the app.
So, how do you fact-check a TikTok? Most of it comes down to checking out who the creator is, whether or not they’re a financial professional and looking up the tips they’re giving to see if they’re true.
It’s possible to search for financial professionals by credential. The CFP Board, for example, has a search portal that can verify if an individual holds a certification, did in the past and are no longer credentialed, and whether they’ve been disciplined by the board. The Financial Industry Regulatory Authority (FINRA)’s BrokerCheck and the Securities and Exchange Commission (SEC)’s Investment Adviser Public Disclosure databases are other tools to determine if someone is licensed to sell insurance or has a professional background in giving financial advice.
Where to Find Solid Personal Finance Advice
If you’re fact-checking personal finance advice you’ve come across on TikTok, or any social media app, it might be hard to figure out where to look to confirm if it’s good advice or not.
There are many personal finance sources out there, but they’re not all created equal. The best, most credible resources are often straight from federal regulatory and watchdog agencies.
Here are some of our top picks for where to learn about personal finance:
- Federal Financial Literacy and Education Commission (FLEC). This is a federal entity established under the Fair and Accurate Credit Transactions Act of 2003. The commission is chaired by the Secretary of Treasury and the director of the Consumer Financial Protection Bureau (CFPB). The commission runs MyMoney.gov, a national financial education website that includes resources for money management, taxes and more.
- Consumer Finance Protection Bureau (CFPB). The CFPB is a federal consumer watchdog agency established in the wake of the 2008 financial crisis. The bureau is also dedicated to providing financial literacy resources to consumers in its consumer education section. Financial education topics that can be researched on its website include auto loans, debt collection, mortgages, student loans and more.
- Securities and Exchange Commission (SEC). The SEC is an independent federal government regulatory agency. Part of its duties are to protect investors, which makes it a great source for education on how the stock market works, different investment products and how to vet investment professionals. You can visit the SEC’s consumer education website at Investor.gov.