Are You Among 48% of Americans Who Get Money Advice From Friends? 6 Reasons You Shouldn’t
Written by
Jordan Rosenfeld
Edited by
Molly Sullivan
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Financial advice can be overwhelming, especially if you don’t have a relationship with a certified financial planner or other finance professional. Naturally, many people turn to those they know for advice, instead, as many as 48% of them, according to a recent Sago study on finances.
Only 14% or fewer respondents actually sought out the advice of a financial professional of any kind. While it’s understandable that people often ask those they know and trust what has worked for them, doing this could have some potentially negative consequences.
Financial experts explained why relying on your friends and family for financial advice is not a great idea.
They Have No Training
The most obvious reason not to ask friends and family for financial advice, is that your family and friends are probably not financial professionals, according to Chad Gammon, a CFP and the owner of Custom Fit Financial.
“They have good intentions, but they base their advice from personal experience and may not know everything about your personal situation. Personal finance isn’t a one size fits all subject,” Gammon said.
Outdated or Misguided Info
With uninformed advice comes the risk that the information could be “outdated or misguided,” Gammon said. “Tax laws and financial strategies change. Something that worked 10-plus years ago might not apply anymore and could be harmful.”
He gave the example of old advice that buying a home is always better than renting. “This isn’t always the case with rising home prices and higher interest rates.”
Relationship Strain
There is also the risk of a relationship strain, Gammon warned. “If your family or friend ends up giving bad advice, that can create an awkward situation and strain the relationship.”
Instead, he urged, interview certified financial planners or accountants for financial and tax guidance. “While there may be a cost involved, even a small amount of professional help can set you on the right path for years and help you achieve your long-term goals.”
You might also explore employer-provided resources, but be sure to evaluate them carefully. Not all resources operate as fiduciaries, meaning they may not be legally required to act in your best interests.
Clouded by Bias
Well-intentioned advice can sometimes be clouded by personal bias, according to Melissa Murphy Pavone, a CFP, fiduciary and the founder of Mindful Financial Partners.
“What worked for one person might not be appropriate for another, especially if the individual’s financial circumstances are very different from yours. Without a systematic, objective review of your finances, you run the risk of basing important decisions on incomplete or outdated information,” she said.
Partial Information
Even if your friend or family member has some experience, there may be a wealth of information they’re missing, Pavone pointed out.
Financial professionals, particularly CFPs, undergo rigorous training and are required to maintain continuing education, she explained.
“They bring a deep understanding of the financial landscape, including market trends, tax law, estate planning and retirement strategies. In contrast, advice from nonprofessionals may lack the breadth and depth required to navigate these complex areas, leaving you exposed to costly mistakes.”
A Lack of Accountability
Lastly, remember that professional advisors “are held accountable through regulatory standards and industry ethics,” Pavone said. This brings an additional layer of protection that friends and family simply cannot provide.
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