Watch out for 3 red flags before taking advice from a financial influencer
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Nearly 20% of college students say they look to social media most often for financial advice, a recent poll from Generation Lab and Morning Brew finds.
TikTok has emerged as one of the leading platforms for financial advice, with 34% of Gen Z saying they get their financial advice there, according to SmartAsset. The hashtag #FinTok, representing the financial TikTok community, has more than 4.5 billion views on the platform.
At its best, social media helps expose young people to advice on how to save money or climb out of a mountain of credit card debt. But these platforms can also allow for the quick spread of financial misinformation.
When it comes to personal finances, social media has become “a blessing and a curse,” Brian Walsh, certified financial planner and head of advice and planning at SoFi, tells CNBC Make It.
“It’s a way for younger people, and actually anyone of any age, to get exposed to financial knowledge in bite-sized pieces when they need it, which can be extremely powerful,” he says. “But the curse of social media is really that there’s no barrier to entry. And it can become really hard for people to know what’s a reliable piece of financial information versus something that, quite frankly, is going to get them in trouble.”
As social media becomes an increasingly frequent source for money advice, it’s important to be able to distinguish between sound financial guidance and a potential scam.
3 red flags to watch out for before taking advice from a financial influencer
Before following advice from a financial influencer, Walsh recommends looking for these three warning signs to help decide whether their tips are trustworthy.
1. Their advice sounds too good to be true
Alarm bells should go off in your mind when an influencer promotes any kind of get-rich-quick plan. “If it sounds too good to be true, it most likely is,” Walsh says.
“There are no quick fixes, overnight success stories, get-rich-quick schemes that are reputable for personal finances,” he says. “So when I see that, I say run away, because it is most likely going to be something that involves more risk than reward.”
2. They promote extremes and absolutes
Financial influencers who “take extreme stances or speak in absolutes on financial topics” also raise red flags to Walsh, particularly when they talk about debt.
While some influencers recommend paying off all debt except your mortgage before beginning to build an emergency fund or invest, Walsh says that “not all debt outside a mortgage is created equal.”
He advocates for tackling high-interest debt such as credit cards early on, but “other debt might be pretty cost effective, i.e. student loans, and you may want to prioritize other goals ahead of an aggressive pay-down strategy.”
“There’s so much gray area when it comes to personal finances that it’s almost a disservice to say something is always bad or always good,” he says. “The truth is somewhere in the middle.”
3. They have the same solution for every problem
Financial influencers who peddle an identical fix for every issue should also give you pause. Walsh sees this frequently when it comes to influencers who promote life insurance.
“You see people positioning life insurance as a solution to if you die, retirement savings, saving for college, emergency fund, you name it,” he says. “But it’s very unlikely that one thing is going to solve every single problem that you’ve ever faced in your personal finances.”
Credentials to look for in a financial influencer
You’ve found a financial influencer you believe to be credible, and now you’re deciding whether or not to hit “follow.” To vet an influencer’s credentials, Walsh recommends looking to see whether or not they are financial professionals, something they’d likely include in their profile.
“Financial professionals are going to be regulated by their organization and by regulatory agencies,” he says. “So they’re going to have less leeway when it comes to saying things and they’re going to have to actually back it up.”
While social media can be helpful for finding general financial tips online, those looking for specific advice should seek a financial professional to talk to one on one.
All financial professionals are not made equal, either — different acronyms that follow someone’s name require different financial certifications and tests, such as certified financial planner (CFP) or chartered financial analyst (CFA).
You shouldn’t rely solely on official-looking acronyms, though. The U.S. Securities and Exchange Commission recommends checking a financial professional’s background as well.
Influencer or not, you can look up a financial professional’s track record in a database such as BrokerCheck to see if they’ve run into trouble in the past.
If an influencer isn’t a financial professional, it’s still worth it to investigate their background online to check for any glaring complaints or red flags.
Before you make any financial decisions based on an influencer’s advice, Walsh suggests determining how the influencer makes their money.
“If they make money on selling a specific product, then chances are that’s going to be their solution and what they push, whether it’s the right thing or the wrong thing,” he says. “Not saying making money is a bad thing, but you should understand that perspective.”
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