How to know when financial advice is bad | Smart Change: Personal Finances


There are a lot of people who want to tell you what to do with your money. The problem is that only some of them know what they are talking about.

Whether it’s a friend with good investment advice, a relative spouting outdated guidelines on how it “should” be done, or a social media influencer touting a financial product at the fashion, financial advice can be hit and miss. You can filter out useful information and leave the rest, but to do that you need to know how to assess which advice you can trust.


Certified financial planners, financial coaches, or non-profit credit counseling agencies can all provide advice tailored to your unique situation. Look for professionals who don’t earn a commission when you agree to follow their advice using recommended solutions. That way you know you’re getting unbiased advice.

As a bonus, you’ll also get a solid explanation of how different financial products work, knowledge that can serve you well for years to come.

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“Financial matters tend to be complex, and I think that’s why it’s so important to people like me that education is a big part of what we do,” says Durriya Pierce, Certified Financial Planner and expert in financial advice at Albert, a service company.

A friend or relative who has achieved a similar financial goal might also have some practical advice to share. You may be able to lean on them as a source of emotional support as you work towards your own goal.

There may even be nuggets of wisdom in the outdated advice that previous generations relied on. Next time you’re treated to a lecture about how cars cost a dime back then, instead of scoffing in disbelief, ask open-ended questions. How much did your grandfather pay in his first job after school? How much did your parents’ first house cost? It can open up a conversation about how salaries, housing costs, and other money issues have changed over time, so you can both understand where the other person is coming from.

“At some point, it’s less about them sharing advice and more about sharing their story,” says Phuong Luong, a Massachusetts-based certified financial planner and founder of Just Wealth.

FILE – Commuters walk through a corridor of the World Trade Center Transportation Hub, June 21, 2019 in New York City. Whether it’s a friend with good investment advice, a relative spouting outdated guidelines on how it “should” be done, or a social media influencer touting a financial product at the fashion, financial advice can be hit and miss. (AP Photo/Mark Lennihan, File)

Marc Lennihan


Money tips are like clothes. It’s designed to fit one person, but that person might not be you. Some money best practices aren’t right for everyone.

“A lot of times we ignore the context of what people are going through. Financial advisors don’t provide the context and it’s really detrimental when you don’t,” Luong says. “It perpetuates the myth that we can do it on our own and we can’t.”

She cites the oft-discussed 50/30/20 budget — where you apply 50% of your take-home pay to “needs” (like housing, utilities, and transportation), 30% to “wants” (like hobbies and trips) and 20% for savings and debt repayment – eg. In high-cost areas, she notes, rent alone can eat up half your take home pay.

Bad money advice can also oversimplify a complex decision. With more people working remotely, for example, a friend might suggest you just move to a lower-cost city to save some money. Pierce, who lives in a high-cost area of ​​New Jersey and has no plans to leave, says that advice ignores the non-monetary benefits of staying put, such as proximity to an established community of family and friends.

Beware of advice that sounds too good to be true

The internet and social media are full of money-related clickbait that promises near-instant success. Influencers sell access to expensive courses that claim they’ll make you a millionaire. High school acquaintances send you direct messages out of the blue, asking if you want to “be your own boss” by joining a multilevel marketing program. Many of these get-rich-quick schemes are a waste of time and money.

“If it requires you to put money in first, that would be a red flag for me,” Luong said. She recommends reviewing these offers carefully, finding out as much about them as possible — including checking reviews — before shelling out any money.

Trustworthy financial advice won’t make empty wishes for guaranteed wealth. Look for advice that works for you, but gives you realistic expectations and some alternative courses of action.

“Be wary of any financial advice that appears to be black on white,” says Pierce. “Because it really is a gray practice.”

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This column was provided to The Associated Press by personal finance website NerdWallet. Sara Rathner is a writer at NerdWallet. Email: [email protected] Twitter: @SaraKRathner.


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