TikTok personal finance trends exposed

If you’ve ever spent time on TikTok, you’ve likely seen financial advice in many forms from investing to savings tricks.

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

Should not be used: investment advice

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

While it is possible to make money by picking stocks and day trading, it is much easier to lose money. If you can sell the shares to make a profit, you must set aside a portion of the capital gains taxes. These are often left out of the conversation. This can lead to a surprising tax bill for investors.

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

One of the most popular TikTok trends is the pump and dump or boiler room scam, said Daniel M. Yerger CFP of MY Wealth Planners. Here’s how it works. A TikTok influencer will post about a specific stock they have purchased and advise their followers to buy it as well. With a large number of followers receiving their advice, the stock price begins to rise, proving that the influencer was right.

After that, the influencer decides to sell his shares and recommends his followers to sell them as well. The stock price drops dramatically which again indicates that the influencer knows what he is doing.

“The merchant sounds like a genius, but they just make self-fulfilling victims, because those at the bottom of the line to buy or sell will end up carrying the bag,” said Yerger.

What you should do instead: It is better for young people who are interested in investing to buy an index fund that includes hundreds of companies in one lot. An index fund is properly diversified insurance, so your risk tolerance is low. Index funds have low fees and are ideal as a long-term investment.

Should use: Use for frugal advice

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

While these very frugal tips can get a little silly, TikTok is a great place to find creative ways to save money. But if you find yourself buying a paint tube squeezer just to squeeze the last little toothpaste out of the pack, it might be time to put your phone down.

Do not use: Insurance advice

Since many insurance agents get paid on commission, they only make money when they sell the insurance policy. There are many insurance agents out there who use TikTok to sell insurance policies that aren’t suitable for young people – or anyone else really.

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

What you should do instead: Unless you have someone who depends on your income, such as a spouse or child, you do not need to purchase life insurance. If you need a life insurance policy, stick to the term of life insurance. Premiums are low, between $20 and $40 a month, and much more affordable than permanent life insurance policies.

Must Use: Basic Explanations of Personal Finance

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 detailing the basics of personal finance.

For example, if you are trying to learn more about index money, search for #indexfund and watch some videos.

How to use social media for personal finance tips

Check the expert

If you find a social media personality you associate with, check their credentials before acting on their advice. Are they a Certified Financial Planner (CFP) or Registered Investment Advisor (RIA)? Visit their website to see where their advice has been given, such as newspapers, magazines, and other notable publications.

Check the tip

Before implementing the tips you see on TikTok or Instagram, search for them 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 some 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 since a lot of investment advice on TikTok comes from Gen Zers who have mostly lived in a bull market, they are not used to living in a recession for several years. That’s why a lot of investment advice fails to indicate that there will be years when your portfolio will lose money – and that’s perfectly fine.

“I also think for most young people they think you make money in the market every year no matter what – but then again that’s not true,” Kopelman said.

Other tips seem to simplify the process of making money without adding any disclaimers. For example, a video showing how subletting your apartment on Airbnb can help you earn passive income doesn’t touch on the need for your landlord’s approval to sublet your apartment, or that you’re in trouble for rent if you can’t find Airbnb tenant.

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

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Zina Kumok (142 posts)

Zina Kumuk is a freelance writer specializing in personal finance. A former reporter, she has covered murder trials, the Final Four, and everything in between. It has been featured in Lifehacker, DailyWorth and Time. Read about how she paid off $28,000 of student loans in three years at Conscious Coins.


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