Many of us pass the time scrolling on social media or surfing the web. An estimated seven in ten Americans use social media to interact with friends and family. However, 38% of people work with financial advisors, and there are many more of us on social media than seeking financial guidance.
People turn to social media for everything from organization tips to new recipes to financial advice, but not everything you get from social media is factual and quality advice. From poor investing advice to get-rich-quick schemes, misleading information is dangerous to our financial health. Let's look at some common social media financial advice and what you need to watchout for.
Bad Social Media Advice: Investing Is Easy
Understanding how to invest in the stock market can be difficult, but people on social media are telling users the opposite. Social media members promoting day trading, telling you what stocks to invest in and saying investing is easy are called influence investors. Influence investors are making and promoting misleading posts and videos. Those who begin investing learn quickly that you cannot predict what the stock market will do.
When you begin investing, you need to understand your risk tolerance. This is the risk you are comfortable taking with your money and investments. The risk you are taking with your money should be appropriate for your age and how close you are to retirement. People who are younger have a longer time to recover from a loss and can be more comfortable taking greater risks than those who are older. When you make the decision to start investing, it is important to have a balanced portfolio of investments. Don’t rely too heavily on one type of investment or one sector of the market.
Bad Social Media Advice: Living Off Debt Is Fine
Credit cards can provide great perks when you start using them and help you establish a good credit rating if used correctly. It seems that many financial influencers on social media only focus on the credit card perks and not the risks. Racking up credit card charges and always carrying a balance can escalate into a problem quickly. Once you have put yourself in debt with credit cards, it can be very hard to reach any financial goals. Large outstanding credit card debt or a low credit score can prevent you from securing a mortgage or a car loan. Hefty monthly payments leave you with very little money to put towards savings, investments or an emergency fund.
You can use credit cards responsibly if you only charge what you can afford to pay off each month. To make this work, track your charges like you would if you were using a checkbook. Try making a budget and sticking with it. Whether money is going to bills or entertainment, you need to understand how much is coming in and going out to avoid overspending.
Bad Social Media Advice: Sharing Get-Rich-Quick Schemes
Get-rich-quick schemes have always been popular, but they have grown exponentially with social media. Pyramid schemes, surveys and long-lost rich relatives are all examples of get-rich-quick schemes to watch out for. Scammers will promise to make you a millionaire if you give them money first.
The number one rule to follow when trying to avoid these schemes is that if it sounds too good to be true, it probably is. Instead of looking for ways to make money quickly, focus on aspects of your finances that you know you can control. Focus on paying off debt and putting money into retirement savings. You might not make money as quickly, but it is a lot safer.
While much of the advice on social media can be dangerous, you can still find good financial advice from reputable sources. As a fiduciary, the information we share on Asset Preservation Wealth & Tax's social media pages is purposefully educational and thought-provoking. Before taking any advice from social media, consult with a financial advisor who will look at your retirement plan holistically and offer recommendations based on your goals and dreams.
Stewart Willis is the founder and president of Asset Preservation Wealth & Tax, a financial planning firm in Phoenix, Arizona. Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.