Social Media and Your Money: Follow with Caution

By Cindy Scott, CFP?, ChFC?

TikTok may be great for fashion tips, but financial advice? I say slow down. We can go down a lot of rabbit holes with social media, and when it comes to your money, you don't want to be sucked in.

Don't get me wrong. The internet can be a great resource, and I applaud people for searching out information. Having financial information readily available is one of the top reasons Americans are highly confident in their investment strategies, according to the Schwab Modern Wealth Survey.

It's no surprise that younger folks rely on social media more than their parents. The same survey found that 72% of Gen Z rely on social media and the internet for financial advice, which is a lot higher than older generations like Millennials at 57% and Boomers at 19%.

So if that describes you, consider this. Just because the information is there doesn't mean you should automatically trust it. My friends and relatives often ask my opinion of financial videos they've found on social media. Some of them? I simply say: Delete! Other videos may have both good and bad points. But ultimately, when it comes to social media, digging deeper might be a better idea. Don't take anything at face value.

To protect yourself—and your money—here are eight ideas to help you evaluate financial information on social media before making money moves.

1. If it sounds too good to be true, it probably is

From day trading courses to house flipping to cryptocurrency, finfluencers can promote a myriad of ways to get rich fast. I say if it sounds too good to be true, it probably is. So slow down. Don't fall for the quick and easy. If it's truly something that intrigues you, take your time, do your research, and get a second or even third opinion from someone you trust.

2. Beware of conflicts of interest

Consider why someone may be recommending a specific idea or course of action. What's in it for them? Are they getting a commission, or could it be part of an affiliate marketing deal? There are rules and regulations financial services professionals must follow, including providing disclosures about potential conflicts of interest. However, only 20% of the finfluencer content that contained investment recommendations included any form of disclosure, according to the CFA Institute.

3. Be skeptical

Don't assume the person giving advice on social media is qualified. Find out. Explore their background. Look for their professional financial credentials. Are they licensed, or do they have certifications—like the CERTIFIED FINANCAL PLANNER? designation? Credentials can be critical. On social media, anybody with no training could set themselves up as a financial influencer. Make sure whoever you're following is qualified and knows what they're talking about.

4. Don't run with the herd

You may think you're independently minded, but we're all social animals influenced by the people around us: family, co-workers, friends—and yes people on social media. Behavioral economists have discovered that when everybody is doing something, we may want to do it too.

But herd mentality can be dangerous, especially when it comes to your money. People tend to be driven by two primary emotions: greed and fear. And each can lead to bad money mistakes. For instance, greed could make you want to jump into crypto or real estate because it sounds like everyone is making a killing. While fear might make you want to cash in your investments at the wrong time. So don't follow the herd. Instead, listen to qualified experts and people you trust.

5. Fight back against confirmation bias

You see something on TikTok or Reddit that you agree with, so you look for more from that person or from other influencers who think like you do. That's an example of confirmation bias, the tendency to seek information that supports what we already believe.

But when it comes to how you invest your money, it could be prudent to look at both sides, the why and the why not. Follow the influencers you agree with, but then also look for a counterargument. Better yet, get an outside opinion from someone you know and trust like a financial advisor or someone whose financial expertise you admire. With more information, you'll be able to make a more informed decision.

6. Follow social media content from trusted sources

The Schwab Modern Wealth Survey I mentioned before notes that most Americans grade social media platforms the lowest relative to other sources of financial advice. But that doesn't mean there aren't reputable sources out there. For instance, the Schwab Moneywise Instagram and Money Talk Newsletter on LinkedIn both offer sound financial insights based on time-tested principles. There are a number of legitimate organizations using this powerful platform to provide everyday people with resources to help improve their financial lives.

7. Expand your sources of information

So, last but not least, I tell my family to get off TikTok for financial information and to get a financial advisor they can talk to about their finances. That's important because, while there may be many legitimate financial ideas on the internet, they may not be right for you.

8. Base your money decisions on sound principles

I'm a big believer in following sound investing principles. And get-rich-quick schemes don't fall into that category. I suggest you build your financial foundation on these wealth-building principles:

• Create a financial plan based on realistic goals.
• Start saving and investing now.
• Build a diversified portfolio based on your own feelings about risk.
• Pay attention to fees and taxes.
• Consider including cash and bonds in your portfolio.
• Being engaged and rebalancing your portfolio regularly could work for you.
• Ignore the noise.

The last point is especially important in this age of constant news, opinions, and social media. It's great that the information is out there. But think for yourself, verify what you see and hear, and most importantly, always consider what's right for you.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

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