TikTok Personal Finance Trends Debunked

If you spend any time on TikTok, you’ve probably seen financial advice in many forms from investing to savings hacks.

While some of the advice is good, some of it is bad and most of it is surprisingly entertaining. We’ll help you figure out which is which, so you can ensure your money is in the right places.

Shouldn’t use: Investing advice

A 2020 study from startup Paxful found that 64% of the misleading personal finance videos posted on TikTok mentioned investing in an individual company, like Tesla, Amazon or Alphabet.  Many TikTokers also advocate for day trading, which means buying and selling stocks that day.

While it’s possible to make money by stock picking and day trading, it’s much easier to lose money. If you manage to sell stocks for a profit, you have to set aside a portion for capital gains taxes. These are often excluded from the conversation. This can result in a surprise tax bill for investors.

Many TikTok influencers also tout various cryptocurrencies as a solid investment. But because crypto is a relatively new invention, it shouldn’t make up the bulk of your investments.

Daniel M. Yerger CFP of MY Wealth Planners said one of the most popular TikTok trends is the pump-and-dump or boiler room scam. Here’s how it works. The TikTok influencer will post about a certain stock they bought and advise their followers to buy it too. With a large following taking their advice, the stock price starts to increase, proving the influencer was right.

Then, the influencer decides to sell their shares and recommends that their followers sell them too. The stock price plummets which again demonstrates that the influencer knew what they were doing.

“The trader looks like a genius, but they’re just creating self-fulfilling victims, since those who are last in line to buy or sell will end up holding the bag,” Yerger said.

What you should do instead: Young people interested in investing are better off buying an index fund, which holds hundreds of companies in a single share. An index fund is a properly diversified security, so your risk tolerance is low. Index funds have low fees and are perfect as a long-term investment.

Should use: Use for frugal advice

Like other social media platforms, TikTok is full of advice on frugal living and cheap life hacks. Content creators love to focus on topics like meal planning, saving money on groceries and making your own household products. Other topics include cheap recipe ideas, how to make your products last longer and how to save on utility bills.

While these ultra-frugal tips can get a bit silly, TikTok is a great place to find creative ways to save money. But if you find yourself purchasing a paint tube wringer just to squeeze the last little bit of toothpaste from the packaging, it might be time to put down your phone.

Shouldn’t use: Insurance advice

Because many insurance agents are paid by commission, they only earn money when they sell a policy. There are many insurance agents using TikTok to sell insurance policies that aren’t appropriate for young people – or anyone really.

One of the most popular insurance TikTok videos says you can outpace the stock market by investing in a life insurance product that ties its returns to the S&P 500. Unfortunately, the video fails to mention the high fees, limit on returns and what happens if you miss a payment.

What you should do instead: Unless you have someone who relies on your income, like a spouse or child, you don’t need to buy life insurance. If you do need a life insurance policy, stick to term life. The premiums are low, between $20 and $40 a month, and much more affordable than the permanent life insurance policies.

Should use: Basic personal finance explainers

If you’re struggling to understand the difference between a 401(k) and an IRA or how a high-yield savings account works, TikTok is full of videos that break down the basics of personal finance.

For example, if you’re trying to learn more about index funds, look up #indexfund and watch a few videos.

How to Use Social Media for Personal Finance Advice

Vet the Expert

If you find a social media personality you relate to, verify their credentials before acting on their advice. Are they a Certified Financial Planner (CFP) or a Registered Investment Advisor (RIA)? Visit their website to see where their advice has been featured, like prominent newspapers, magazines and other publications.

Verify the Advice

Before you implement advice you see on TikTok or Instagram, search for it separately on Google. This way you can see if reputable sites also recommend it.

For example, if you see a post about refinancing your student loans, read a few articles about refinancing from the New York Times, Marketwatch or Kiplinger’s. TikTok videos are incredibly short, so it’s hard to explain all the pros and cons, even if the creator has good intentions.

Be Wary of “Get Rich Quick” Schemes

Financial advisor Thomas Kopelman of RLS Wealth said that because much of the investing advice on TikTok is coming from Gen Zers who have mostly lived through a bull market, they’re not used to living through a recession for several years. That’s why so much of the investing advice fails to mention that there will be years where your portfolio loses money – and that it’s perfectly ok.

“I also think for most younger people they think you make money in the market every single year no matter what — but again this is not true,” Kopelman said.

Other advice seems to simplify the process of earning money without adding any disclaimers. For example, a video that shows how subletting your apartment on Airbnb can help you earn passive income does not touch on needing your landlord’s approval to sublease your apartment, or that you’re on the hook for rent if you can’t find an Airbnb tenant.

“Anything that makes guarantees or appears to be a ‘get rich quick’ strategy should be viewed with a lot of skepticism,” said Ryan Moore, a financial planner at Jato Wealth Advisory.

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