5 Personal Finance Myths from Social Media You Should Ignore
Be wary of get-rich-quick investment schemes and other personal finance myths you see on social media.
What We'll Cover
- How to tell if a “finfluencer” is credible
- Red flags for when to avoid personal finance advice
- Personal finance myths you may see on social media
- What personal finance advice on social media you can trust.
If you’re under the influence of a finfluencer – a financial social media influencer – you're not alone. A Forbes survey found that nearly 80% of Americans ages 18 to 41 are turning to social media for financial advice. Personal finance advice from social media can be confusing. What advice can you trust? Who are these experts? Most importantly, do they have your best interest in mind?
While there are financial gurus spreading good general advice on budgeting and paying off debt, you will also come across people with questionable credibility who are promoting worrisome financial advice. Here’s how to spot the red flags on social media, as well as what advice you can trust and what you should throw out the window.
Can You Trust Personal Finance Advice on Social Media?
A finfluencer is a person who can influence an audience in making financial decisions by making recommendations on social media. However, there is some risk to following their financial advice. Not all finfluencers will have the credentials that qualify them to guide people on making financial decisions.
When a finfluencer publishes an article, video or post, they are broadcasting to a large audience. This type of broad content is difficult to trust when it comes to finances, because there's often not a one-size-fits-all solution to financial challenges.
Additionally, finfluencers are often being compensated by a company they’re advertising for. The more content they produce, the larger the audience they grow, the more money they make.
But with social media being so widely used among young people, credible financial experts also use the platforms to promote their ideas on budgeting, building wealth, and paying off debt. So, how do you know who to trust?
What to Look for in a Finfluencer
If you see financial advice on social media that intrigues you, dig a little deeper. First, does their advice work with your own financial goals? If so, investigate the influencer’s background. Here’s what you’ll want to look for:
- Credentials: Do they claim to hold a financial certification, and is that certification legit? Verify that it comes from an accredited organization.
- Data: Does the finfluencer provide data that backs up their claims? If the only results they’re showing are their own, be wary of their advice.
If everything checks out so far, do some further research on the strategy they’re recommending. Run it by a licensed financial advisor or look online to see if trusted financial institutions back up this strategy.
When considering any type of high-risk investment product, only invest money that you can afford to lose. Never pay in cash or take out a loan to pay for an investment. Keep thorough records of who you invest with.
Red Flags on Social Media
Before investing in any financial recommendations you see on social media, watch out for these red flags:
- Free offers: Look for hidden fees and get payment commitments in writing.
- Courses to pay for: Consider the content being covered and whether it’s available for free in online articles. Some scams include charging overpriced courses for financial literacy that no one should have to pay for.
- Scare tactics and peer pressure: If someone is urging you to pay up front for something that hasn’t been delivered, this could be a scam. Reach out to friends, family or a licensed financial advisor if you feel anxious about any purchase online.
5 Personal Finance Myths
Whether you think you can trust the source or not, avoid personal finance advice that says any of the following myths.
Personal Finance Myth #1: You don’t need an emergency fund.
An emergency fund should absolutely be one of your first priorities when saving money. This money is separate from any retirement savings or savings for a new car or vacation. It is what you turn to when the unexpected happens, like your air conditioner goes out in the middle of an Arizona summer. Having an emergency fund is what allows you to cover emergencies without dipping into your budget.
Personal Finance Myth #2: Renting is throwing money away.
This is a common misconception that makes people feel they need a house before they can afford it. But is paying for a roof over your head, even if it’s renting, really throwing money away? While you might not be putting money into an asset you own, you’re still getting value out of paying for a place to rent.
Everyone’s situation is different when it comes to buying vs. renting, and buying a home is something to be financially prepared for. Renting for as long as you need while saving for a home is not a waste of money.
Personal Finance Myth #3: Get rich quick by investing in a single stock or crypto.
All investments come with some risk, and cryptocurrency is a high-risk asset with no guarantees about how it will perform. While we’re not saying to avoid investing in crypto or other new things on the market, what we are saying is that it’s important not to put all your money into these types of investments.
However, building wealth is a long game. Steer clear of any investment products that are advertised as a quick way to build wealth.
Personal Finance Myth #4: Credit cards are bad.
Credit cards can be a great financial tool; the key is to use them responsibly. Those who say credit cards are bad are likely warning about the possibility of racking up high-interest debt, hurting your credit score and getting yourself into a financial hole. Yes, these things are possible when you misuse a credit card.
But when you pay more than the minimum payment every month, earn cash back and rack up rewards, credit cards are actually a great tool to build your credit score.
Let’s set the trend.
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Personal Finance Myth #5: All debt is bad.
Of course, you don’t want debt that you can’t manage, but not all debt is bad. Student loans, mortgages, small business loans – these are all ways to borrow money that can potentially help you earn more money or increase your net worth.
It’s important to remember that there are no guarantees that these things will be profitable. If you plan to take out a large loan, ensure you have a plan to repay these debts and keep your accounts in good standing.
Personal Finance Advice to Trust
If you see the following personal finance advice on social media, know that you can trust it.
Personal Finance Fact #1: Save a percentage of every paycheck.
125 million U.S. adults are currently living paycheck-to-paycheck. Without an emergency savings, any type of crisis could put you in big financial trouble. This is why saving money from each paycheck is crucial to improving your finances and reducing stress around unexpected situations. Using a portion of your paycheck to save for things you want and for retirement is also something to prioritize.
Personal Finance Fact #2: Diversify your investments.
As mentioned earlier, all investments come with some risk. This is why you don’t want to put all your money into one stock or other form of investment. To reduce some of the risk, it’s important to invest your money in multiple locations.
A financial advisor helps you make the best decision for your finances because they can remove the emotion and inject experience into your investment strategy. Not only will a financial advisor help you make better financial decisions, but they’ll more importantly save you from making costly financial mistakes throughout your wealth-building years.
Personal Finance Fact #3: Save for retirement while you’re young.
While retirement may be decades away, there’s no better time to start retirement savings than when you’re young. What makes time your greatest ally when building wealth? Two words – compound interest. Compound interest is basically the interest that you earn on a balance in a savings or investing account that is then reinvested, earning you more interest.
Here’s a quick example:
Let’s say that over a year you are able to save $1,000 and the interest rate earned was 10%. This means you saved $1,000 and at the end of the year the account was worth $1,100.
The next year you save another $1,000 and you earn another 10% interest. However, instead of 10% of $1,000, you actually earn 10% of the savings as well as the interest ($1,100) you made the year before.
While that may not seem like a lot at first, over time it starts to really add up, or compound, and that’s when the magic really starts happening.
The bottom line – time is the most important factor when building wealth. The earlier you start saving and investing, the easier it is to build wealth.
- Don’t put all your money into high-risk investments. Diversify your investment portfolio to reduce risk.
- When used responsibly, credit cards can help you build your credit score and earn rewards that save you money.
- It’s never too soon to start saving for retirement.
- Financial influencers – finfluencers – are not often certified with any financial credentials. Do your research before taking financial advice you hear on social media.
We get it – social media is a fun place to hang out and see what other people are recommending. But take any financial advice you hear – especially the personal finance myths mentioned above – with a grain of salt. Avoid any get-rich-quick advice, and do your research on the strategies that intrigue you.
OneAZ has your best interest in mind, and we’re here to help you reach your financial goals. For professionally backed tips on budgeting, saving and borrowing, check out more articles and videos in our Financial Resources Guide.
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APR = Annual Percentage Rate