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What started as a social media app where Gen Zers and millennials (and the occasional boomer) would go to share viral dances has since become a hub for free personal finance education.
"FinTok" (aka personal finance TikTok) is the name for the platform's growing trend where users, or self-proclaimed experts, offer advice on what to do with your money. Topics range anywhere from credit card debt, to 401(k)s, investments and retirement.
Like all things on social media, however, not all of the "expert" advice you see is necessarily true. What one user says works for their finances won't apply to the millions of other TikTok viewers watching.
Paxful, a cryptocurrency trading platform, found that about one in seven videos from TikTok's finance influencers is misleading, encouraging users to make financial decisions without indicating any type of disclaimer. Paxful also revealed in their post "Influencer Investors" that more than half (52%) of the influencer accounts they analyzed had posted at least one misleading video — and these accounts collectively garner 9.46 million followers.
To help you identify false information from trusted and accurate advice, CNBC Select asked Brian Walsh, a CFP at SoFi, to weigh in on the common misinformation he sees being spread on TikTok.
Here are the three most frequent pieces of general personal finance advice he is seeing take over the social media app.
False. The videos telling you to invest in X and Y stock simply because somebody else rich and famous is doing it — or a company insider does — is a red flag.
You may come across TikTok videos that tout investing in certain companies like Tesla, Amazon and Alphabet or single out specific funds because successful people invest in them.
One example is this TikTok user who copied the exact investments that CEOs made for two weeks. In the 60-second video he says, "Thank you rich people!"
But while mimicking the financial behaviors of successful people might seem smart, it's only appealing on the surface.
"Simply buying or selling stocks because a famous or rich person does it does not mean it will be effective," Walsh says.
Why? Because powerful people have more disposable income. They can afford to take on much more risk than the Average Joe. Their income is often high enough that a small setback or a loss in their investments won't leave them broke or deter them from being able to continue investing.
They may also have greater knowledge and awareness about the market (or advisors who inform them), which are unfortunately factors that don't apply to every person on TikTok, Walsh explains.
"I'm not saying [their advice] would never work; rather, you should invest based on your comfort with risk, with your personal financial goals and financial situation in mind, and not just mimic what rich and famous people do," he says.
False. Walsh has seen a handful of videos on TikTok encouraging people to mimic investment managers' holdings, or stocks, that performed well in the past.
One example is this TikTok user who shows on a heat map how much people made buying and holding Bitcoin. In the video he is inferring that those who buy HEX, another type of cryptocurrency, may also end up rich.
Again, Walsh warns to be careful: "Past performance does not predict future performance," he says. Just because a top-performing stock or fund manager performed well in the past, it doesn't mean that they will stay that way over time. When following specific fund managers, remember that the contents of the investment manager's portfolio (the stocks, bonds, mutual funds, etc) are from a time in the past and have probably since changed.
"You would essentially just be following what they did, likely at different prices and technical factors," Walsh says.
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False. TikTok is inundated with videos on how to get rich fast. "There's no quick path to Richie Rich," Walsh says.
Common get-rich-quick schemes seen on the social media platform promote investing, real estate and passive incomes as easy ways to become a millionaire overnight.
"Get-rich-quick schemes seem as prevalent as crash diets that will help you lose all that unwanted weight overnight, and unfortunately they can be just as dangerous," Walsh says.
Rental property and house flipping videos are the scariest, he says. Influencers encourage you to borrow money to buy rental property, use the rent you make from tenants to cover your bills, and then flip the property for a profit in the future.
Walsh points out a few things to be aware of here: First, using debt to buy investment properties is risky. You don't always know if your rental property will be a success, but you'll have to pay back the mortgage regardless.
Managing rentals is also complicated and far from the quick or easy source of income people say it is. Remember you won't always have a line of qualified renters waiting to live in your house, and property value doesn't always go up — at least not immediately. If reselling or "flipping" a house is your goal, be prepared to wait for a favorable market and/or the right offer.
"Passive income or rental income is not always a bad idea, but if you are going to pursue this approach, you need to understand the risks and be fully prepared for challenges along the way," Walsh says.
Saving smaller amounts of money over time may seem a little boring in comparison to what viewers see on TikTok, but it's a proven way to grow your money. Start with a "nest egg" — ideally one earning compound interest in a high-yield savings account. Once you have a cushion to fall back on, investing in stocks and real estate becomes a little less risky.
Both the Ally Online Savings Account and Vio Bank High Yield Online Savings Account offer above-average interest rates that compound daily, meaning you earn interest on both your principal and your already accrued interest every day.
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