Need That Money

Busting Financial Myths on TikTok: Expert Insights

5 Common Financial Myths Debunked by Experts

The world of personal finance can be complex and confusing, particularly for younger generations who are still learning the ropes. With the rise of social media platforms like TikTok, there is a seemingly endless supply of financial advice available online.

Unfortunately, much of the advice being shared is misleading or outright wrong, leaving aspiring investors vulnerable to making costly mistakes. In this article, we will explore five common financial myths that are perpetuated on TikTok, and provide expert insights on why they are inaccurate.

S Corporation as a Tax Avoidance Strategy

One popular financial strategy touted on TikTok is the S corporation tax avoidance scheme. The premise is to set up a small business and register it as an S corporation, which allows the owner to avoid paying self-employment taxes on their income.

While this may sound appealing, it is important to understand the limitations of this strategy. Bill Smith, Managing Director for CBIZ MHM’s National Tax Office, explains that the IRS places strict limitations on who can qualify as an S corporation owner, and failure to comply with these regulations can result in penalties and back taxes.

Additionally, not all businesses will reap significant tax benefits from operating as an S corporation, as there are other factors that can impact tax liability.

Day Trading as a Consistent Investment Strategy

Another financial myth that millennials and Gen Zers are falling prey to is the idea that day trading is a reliable investment strategy. TikTokers with significant followings are sharing videos of their earnings from day trading.

However, Will Rhind, Founder and CEO of GraniteShares, cautions that day trading is risky and requires significant time and effort to be successful. The vast majority of day traders lose money, and those who do make a profit often pay exorbitant commissions to their brokers.

Rather than focusing on short-term gains, Rhind recommends a long-term investment strategy that includes a diversified portfolio of ETFs.

Compound Interest for Quick Wealth Accumulation

The idea of compound interest is often thrown around on TikTok as a way to get rich quick. The concept is simple: the interest earned on an investment is reinvested, generating even more interest over time.

However, Andrew Meadows, Vice President of Brand and Culture at Ubiquity Retirement + Savings, points out that while compound interest is a powerful tool for wealth accumulation, it should not be viewed as a shortcut to riches. In order to build significant wealth through compound interest, you need to be consistent in your contributions over a long period of time, often decades.

Moreover, not all investments offer compound interest, and it’s important to understand the potential risks and rewards of each investment opportunity.

Minimal Down Payment for a House Purchase

Homeownership is a common goal for many millennials, but with rising home prices, it can be difficult to save up for a down payment. Some TikTok users are promoting the idea that you only need to put down a minimal amount, such as 3%, to purchase a house.

However, Alex Klingelhoeffer, Director of Sales and Operations at Keyrenter Property Management, warns that this strategy can be risky. With a small down payment, you’ll immediately be in a position of negative equity and will need to pay mortgage insurance.

Moreover, if the housing market experiences a downturn, you could find yourself with a mortgage that exceeds the value of your property. It’s important to have a solid understanding of your financial situation, and the costs associated with homeownership before purchasing a home.

New Cryptocurrencies for Instant Riches

With the rise of Bitcoin and other cryptocurrencies, TikTok has become a breeding ground for financial advice on investing in these digital assets. However, Alex Klingelhoeffer advises caution when investing in newer cryptocurrencies.

Many of these coins have not yet proven themselves to be legitimate investments, and their value can be highly volatile. Investing in cryptocurrency requires significant research and an understanding of the market, which can take time and effort.

Klingelhoeffer recommends that those who are interested in investing in cryptocurrency should educate themselves thoroughly before making any investments.

In Conclusion

In conclusion, the world of personal finance can be overwhelming and littered with misinformation, especially on social media platforms like TikTok. However, by educating ourselves on the realities of these financial myths, we can make informed decisions that will help us achieve our long-term financial goals.

It’s important to always be wary of financial advice, especially when it seems too good to be true. By consulting reputable sources and taking a careful and nuanced approach to financial planning, we can build a strong financial future.

In conclusion, the rise of social media has made financial advice more accessible, but also potentially more misleading. This article highlights five common financial myths perpetuated on TikTok and debunks them with expert insights.

The five myths include using an S corporation for tax avoidance, day trading as a consistent investment strategy, compound interest for quick wealth accumulation, minimal down payment for a house purchase, and investing in new cryptocurrencies for instant riches. By educating ourselves with factual information, we can make informed decisions and achieve long-term financial goals.

Remember to approach financial planning carefully, consult reputable sources, and avoid following easy solutions that sound too good to be true.

Popular Posts