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Scrolling through TikTok, you come across a huge range of videos, from people dancing to Doja Cat to someone encouraging you to invest in Tesla. Financial TikTok, also known as FinTok, is where individuals share advice on topics from investing to cryptocurrency to saving for retirement.
Yet, just like a big chunk of the news you find on social media, there are lots of FinToks containing misinformation. Anyone can post on TikTok, so there's no guarantee that you're being provided with sound financial advice or that the person is qualified to talk about personal finance. Furthermore, while some of the financial advice found on TikTok may be accurate, it's not one-size-fits all information that's specific to an individual's financial needs.
Select fact-checked five popular personal finance TikToks, each with more than two million views, and spoke with two financial advisors to get their thoughts on whether the advice is accurate and worth following.
In this TikTok by Humphrey Yang, a former financial advisor with a popular personal finance TikTok and YouTube channel, Yang provides three personal finance suggestions for teenagers who just turned 18: open a checking account, build your credit score and open a Roth IRA.
Is this good advice?
Yes, it's good advice. Though our financial expert argues you don't need to worry about your credit score when you're 18.
First off, starting to save for retirement early is always better than later. Since most 18-year-olds don't have full-time jobs or access to a 401(k) through their employer, a Roth IRA is a good way for teenagers to put money, that's already been taxed, toward retirement.
With a Roth IRA, you won't have to pay taxes on that money when you begin withdrawing it in your non-working years. And by starting young, you have more time to take advantage of compound interest.
Opening a checking account is another good idea for teenagers who've never had their own bank account and need an easily accessible place to keep their money. When choosing a checking account, you should look for one with no monthly maintenance fee, no minimum balance requirement and a low initial deposit.
If you have more than a couple month's worth of living expenses saved up in a checking account, you could also opt to save the excess in either a high-yield savings account, a CD or in the stock market. All of these options will yield a greater return on your money than a traditional checking account would.
Yang also suggests that students who are looking to build their credit open a Discover it® Secured Credit Card. This secured credit card requires that people put down a deposit, which then becomes the credit limit. The deposit on the card becomes collateral if you ever can't pay off your balance.
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Starting at seven months from account opening, Discover will automatically review your credit card account to see if you can transition to an unsecured line of credit and return your deposit.
However, John Madison, a CPA and personal finance counselor at Dayspring Financial Ministry, disagrees with Yang's advice that teenagers should prioritize building their credit history.
"I don't put a lot of emphasis — especially for young people — on building credit because I've seen instances where they're kind of new to this personal finance thing, and it's very easy to get out of control with spending." says Madison.
Madison suggests one more piece of advice for teens looking to get started managing their finances: make a budget or a spending plan. When you start tracking your expenses and income early in life, it will help you create a good habit you'll follow always.
In this TikTok by Thach Nguyen, realtor and TikToker with 1 million followers, Nguyen gives advice on how teenagers can make more than $100,000 by wholesaling rental property. He breaks it down into four easy steps: find a house that is run down, track down the owner of the property, make an offer on the property and put it under contract, then find an investor to sell the contract to for $10,000.
Is this good advice?
Theoretically, yes. But in reality, there are other obstacles when it comes to real estate wholesaling.
Wholesaling is akin to a finder's fee for rental properties.
Madison breaks it down like this: You find a rundown property and make a lowball offer to the property owner and put it under contract. After that you find a professional real estate investor and offer them the option of taking your place on the contract. You never have to actually purchase the rental property and you'll earn a fee from the real estate investor who takes over the deal.
Sounds easy, right? Not so fast though.
Real estate investing is often competitive, Madison says, so it might be difficult to find an investor. Furthermore, you typically have to put money down when you sign a contract to purchase a piece of property. If you're unable to sell the property because you can't find an investor, you could end up losing the deposit.
"I think [Nguyen's TikTok] is a little too simplistic and appeals, in my opinion, more to people's greed for easy money than it is really a viable plan," Madison says.
In this TikTok by Sam Primm, a real estate investor with more than 1 million followers on TikTok, Primm rejects conventional paths to retirement such as investing 10 to 25% of your annual income and waiting until you're in your 60s to collect Social Security. He argues that people interested in retiring in the next five years should invest in real estate using "other people's money" and create a passive income source that will cover their monthly expenses.
Is this good advice?
Again, it's good advice in theory, but in practice, investing in real estate is a lot more complicated.
When Primm talks about the benefits of using "other people's money" to invest in real estate, he's talking about using leverage or borrowing money to fund a real estate investment. By putting a small percentage of the mortgage down on a real estate property, you'll get a higher rate of return than if you paid for the property in cash.
While Primm makes it sound simple to put a small amount of money down to buy a house, borrow the rest from the bank and then sit back and reap the rewards when the value of the house increases, it's much easier said than done.
"I'm not a big fan, in this context, of using debt, because you're obligated as the owner of the property to continue to make payments to the mortgage company whether or not you're collecting rent," Madison says.
You'll also have to find the right real estate market where the cost of renting property is greater relative to the cost of buying property as well as be aware of taxes that you could incur when selling property.
Furthermore, Scott Sturgeon, a wealth advisor at Falcon Wealth Advisors, notes that real estate investing isn't really a passive income stream if you're new to it and don't yet have someone managing the day-to-day logistics.
"If your tenant calls you at 3 a.m. because the pipes are frozen, you have to be the one who gets up and goes over there," Sturgeon says. "There's obviously a lot of costs associated with upkeep of properties."
While real estate investing has its benefits and is considered inflation resistant because landlords can increase the value of rent over time, for most people, it's not a quick fix way to reach retirement early.
In a TikTok with nearly 18 million views, Mark Tilbury, personal finance YouTuber and self-proclaimed self-made millionaire, does a skit depicting an evil credit card issuer and a smart credit card user. Tilbury argues that credit card users are encouraged to spend a greater percentage of their credit limit and to pay back only the minimum amount on their credit card every month.
Is this good advice?
Yes, it's good advice for how to be smart when using your credit card.
Tilbury touches on two important aspects of responsible credit card usage: keeping your credit utilization ratio low and paying off your bill on time and in full to avoid high interest rates and late fees.
"The average interest rate of credit cards right now is somewhere around 16% so that's obviously very high compared to the interest rate you get on your checking account," says Sturgeon. "So paying off that balance every month is much better."
Another important factor in being a responsible credit card user is keeping your credit utilization ratio low.
Your FICO credit score is determined by a variety of factors, and three of the most important are your payment history, your credit utilization ratio and the length of your credit history. Your credit utilization ratio is the ratio of credit you use to the amount of credit available to you. For example, if you're using $100 of your $1,000 credit limit, your credit utilization ratio is 10%.
If you want a good credit score, you should keep your credit utilization ratio low, around 10% to 15%, suggests Sturgeon.
According to ecommjess, the money that you earn when you sell a stock (aka capital gains) after holding it for less than a year is subject to your income tax rate. This is because your capital gains are considered a part of your income in the short term. For stocks held for more than a year, you're subject to a long-term capital gains tax which is lower than the income tax rate.
Is this true?
Yes, it's true that long-term capital gains tax is typically less than short-term capital gains tax.
When it comes to investing in the stock market, you're usually better off investing for the long haul.
Whenever you buy a stock and sell it for more than you initially bought it for, the money you earn is called capital gains. If you decide to buy a share of stock and sell it within a year of buying it, you'll be taxed at rate in accordance with your income tax bracket, says Sturgeon. This is known as short-term capital gains tax.
If you hold on to a stock for more than a year before selling it, you'll be subject to a long-term capital gains tax which is typically lower than the short-term capital gains tax rate.
"The tax code encourages longer-term investment," Sturgeon says. "That capital gains structure, in theory, encourages investment which is good for building companies and in turn, allows people to generate income on their investments."
If you're a new investor, you should work on a long-term investing strategy in order to avoid short-term fluctuations, like the market downturn we saw in March 2020 because of the onset of the Covid-19 pandemic.
"I never recommend that somebody invest in stocks, unless they have at least a five-year timeframe, which is going to put it past the year required to get long-term capital gains treatment," Madison says.
Since most people have their money invested in retirement accounts and not taxable brokerage accounts, Madison also points out that it's important for people to know that 401(k)s and Roth IRAs are not subject to capital gains tax.
Financial advice on TikTok, it can be a hit or a miss when it comes to accuracy. Some of the TikToks we examined provided factual advice in less than 30 seconds while others essentially made get-rich-quick suggestions without delving into any details.
While social media has made financial advice more accessible for young people, it's still essential to do your research and seek out more resources on the personal finance topics that interest you.
"There's very few topics in any subject, but especially personal finance, that you can really understand in 30 seconds or a minute," Madison says. "So if something kind of piques your interest make sure you do your due diligence [and] your full research on the topic before you jump into something. "
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