The Worst Personal Finance Advice on TikTok (and Why It’s Wrong)

New Delhi, India - April 23, 2019: Woman holding motorola phone with ban streaming service media and video TikTok application on the screen.
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TikTok isn’t just about viral dance videos. It has become quickly a popular resource for personal finance advice — but unfortunately, not all of it is good. While there are some legitimate money experts on the app, there is a lot of financial advice floating around on TikTok that is misleading or just plain wrong.

Related: The 10 Best Money Experts To Watch on TikTok
Money’s Most Influential: Where Do Americans Get Their Financial Advice?

GOBankingRates asked personal finance experts to debunk some of the worst money advice on TikTok — so if you see any of this pop up on your #fyp, keep on scrolling.

Starting an S Corporation Can Help You Avoid Paying Taxes

In a popular TikTok video, a woman claims that “if you start an S corporation and you own 100%, you can buy everything that you own under that S corporation and you don’t pay taxes on anything you purchase because it’s considered a corporate expense.” The video also claims that you can hire your children to work for you for $12,000 per year tax-free and “gift this expense back to your household.”

Building Wealth

Why this is wrong: “The S corporation is only ‘allowed’ to buy things that are considered ordinary and necessary expenses for its own business,” said Bill Smith, managing director for CBIZ MHM‘s National Tax Office. “So, for example, if it bought a lawnmower that you use to cut your lawn, that would be treated as a taxable distribution to you. There are legions of cases that discuss using a business as a personal checkbook, and they are not limited to S corporations.”

As for the claim that you can “hire” your children to work for you for $12,000 per year tax-free, this is likely in reference to the annual gift tax exclusion — which wouldn’t even apply here.

“The S corporation does not have the annual gift tax exclusion available to individuals (which for 2021 is up to $15,000),” Smith said. “The standard deduction for 2021 is $12,550 (not sure when the video posted), so assuming that the child is legitimately working and the compensation is reasonable, there would be no income tax, although still employment taxes. The S corporation would not get to deduct the $12,000 in salary if the children did not work or the compensation was unreasonable. She seems to conflate the standard deduction and annual gift tax exclusion. There is no aspect to this that involves ‘gifting back to your family household.’ What she seems to be saying is your kids can work tax-free, but what she implies is that they don’t have to do anything to get their $12,550 in 2021. That is inaccurate.”

See: 10 Financial Books That Will Change Your Life (and Finances)

Anyone Can Teach Themselves How To Day Trade and Be Successful at It

A lot of TikTok personal finance content revolves around day trading and how different users have had success doing it. But this is not an investing strategy that experts recommend.

Why this is wrong: “To be consistently successful at day trading, you must have significant capital, time and emotional stamina — attributes most individuals do not possess,” said Will Rhind, founder and CEO of GraniteShares, a New York City-based ETF issuer with over $1.5 billion in assets under management. “While first-time day traders might initially have beginner’s luck, they are probably more likely to suffer losses over time. They could lose their entire investment, or even worse, go into debt if leverage was applied. It’s critical to never speculate with more money than you can afford to lose.”

Building Wealth

Rhind recommends focusing on building long-term wealth instead of short-term gains.

“You’re probably better off putting your money in a diversified investment vehicle that eliminates the guesswork,” he said. “Exchange-traded funds, for example, offer tax-efficient, low-cost and transparent exposure to a basket of securities that trade on an exchange just like a stock. There are thousands of ETFs available that solve for a variety of investment objectives, such as capital growth, wealth preservation, income generation and inflation hedging.”

Find Out: Best Expert Money Advice for Millennials

You Can Turn $56K Into a $1M in 11 Years Thanks To Compounding Interest

In one TikTok video, a woman asks @curtisray for financial advice, stating that her husband makes $80,000 a year and she makes $56,000. Ray recommends that the couple live solely off the husband’s income while the woman puts her entire salary into a compound interest account. He “crunches the numbers” and finds that her $56,000 investment will become $1 million in 11 years — tax-free.

Why this is wrong: Andrew Meadows, senior vice president at Ubiquity Retirement + Savings, notes that living off a single income is easier said than done.

“Who, making $56,000 a year, can go a year without being paid?” he said. “Even though this example is showing a dual-income household, the point here is what you’re willing to give up. Additionally, you’ll have to wait 11 years to get that ‘million.’ It sounds easy: sacrifice one year’s worth of salary (if that’s even possible) and you become a millionaire in 11 years. While it’s true that it’s tax-free — your contributions are taxed before going in, but you’re not taxed on the interest — you’re not quite getting to a million if you’re looking at 2% interest and the account fees. I’m also not seeing the calculations on the fees; there are always fees that folks miss that can erode your savings.”

Ray’s advice may not be “wrong,” but few financial matters are as cut-and-dry as he makes them seem.

Learn: How Much Do TikTokers Make? Here’s 5 of the Highest-Earning TikTokers

“Finance is a nuanced business and getting rich quick is often only for a select and lucky few,” Meadows said. “Beware of all the things that are left out of this advice. If you listen critically, you’ll find you don’t have the info: How much is the interest? Who is this through? Is that institution insured? What are the fees? While some things might be true, just stringing numbers together using loose logic won’t turn around a quick buck. I’ve always been told, ‘If it looks that easy, why isn’t everyone else doing it?’ And, while this might be a sound investment for some, one size doesn’t fit all.”

Don’t Put a Down Payment on a House If You’re Not Required To

In another TikTok video, Ray says that it’s best to put down the smallest down payment possible and then put the rest of the money you had saved for a house into an account with compounding interest.

Why this is wrong: Alex Klingelhoeffer, CFA, CFP, at Exencial Wealth Advisors, said that this isn’t necessarily “wrong” advice, but that it may not be the best advice for every person.

“This advice comes from a good place,” he said. “If you can borrow at a low rate like you can with a mortgage — 3-4% — and invest in markets at 7-9%, you should usually do that. In fact, most folks carry a mortgage and have investments as well. What this advice ignores is the behavioral side of investing. Most folks are going to trail markets by a significant amount, see the market drop, sell and be disappointed in the experience. In fact, I have seen this happen countless times to folks that come into my office in their 40s having made these exact same mistakes in their 20s.”

In addition, a home is a safer investment than the market.

“The issue with this system is it is antifragile,” Klingelhoeffer said. “If you lose your job, experience a poor health outcome or any other issue, your investments could be down at the same time you need cash. Is that money available in a HELOC? No, because if you only have 3% down you haven’t got any substantial equity. Again, this comes from a good place, and on a spreadsheet, I can make anyone a billionaire with enough leverage. In the real world, the swings will take this strategy down.”

Read More: Old-School Money Advice You Shouldn’t Follow Anymore

Buying Into Newer Cryptocurrencies Early Will Make You Rich

TikTok user @superhexwin suggests buying into new cryptocurrencies — like HEX — as a way to get rich, noting that people who bought into bitcoin and Ethereum early are now extremely wealthy.

Why this is wrong: “Yes, assets can and do go up astronomically. Famously, two pizzas were once sold for 10,000 bitcoin that would now be worth $350 million,” Klingelhoeffer said.

However, the rise of bitcoin doesn’t demonstrate that every cryptocurrency on the market will see the same surge in value.

“As of 2021, the main usage of crypto is a greater fool item, i.e., you buy it to sell to someone else,” Klingelhoeffer said. “There are lots of coins nowadays and 99% of them will be worthless in less than three years. Why? There is a finite supply of people willing to put a large portion of their net worth in crypto and those that do will want some liquidity. Until there is a coin with a demonstrable real-world utility better than traditional banking in terms of functionality, power consumption and, most importantly, legality, crypto is just a space to speculate and see if you can hit a winner. I don’t begrudge folks who go to the casino for the same reason. It’s fun — buy with what you can afford to lose.”

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Last updated: June 21, 2021

About the Author

Gabrielle joined GOBankingRates in 2017 and brings with her a decade of experience in the journalism industry. Before joining the team, she was a staff writer-reporter for People Magazine and People.com. Her work has also appeared on E! Online, Us Weekly, Patch, Sweety High and Discover Los Angeles, and she has been featured on “Good Morning America” as a celebrity news expert. 

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