Money can be an emotionally charged topic that’s often best avoided at large group gatherings. But every family has that one relative who can’t help themselves from doling out their ‘expert’ opinions on money every time the family sits down at the dinner table. Unfortunately in many households, that relative has a captive audience, even if they’re handing out bad financial advice.
A recent survey suggests that 37% of U.S. adults depend on friends and family as their go-to resource for financial advice. Some conversations about money can be productive and fun, but they usually require that those involved bring valuable knowledge and emotional maturity to the table along with their advice. More often than not, this simply isn’t the case, and suggestions of how you ought to be managing your money can be riddled with bad financial advice.
How to Handle Bad Financial Advice From Loved Ones
Most of the time friends and family are well-intentioned and genuinely want to be helpful when they share their thoughts on financial matters. While they mean well, not all advice is good advice. Using discernment to decide if you should take Uncle Gary’s hot stock tip to heart could prevent you from making an expensive mistake.
If you find yourself on the receiving end of someone’s financial advice, start by evaluating the source and ask yourself some questions about the person who thinks they know what you need:
- Are their current circumstances similar to yours?
- Do their values align with your values?
- Do they share any of the same long-term goals?
- Have they achieved results that suggest they know what they’re doing?
If the answer to these questions is yes, that’s great. Maybe you have someone close to you who you can learn from. However, it’s still wise to take their opinions with a grain of salt. Money matters are not a one-size-fits-all proposition. What’s right for one person isn’t going to be right for everyone. While there’s no harm in listening, you need to make sure any advice you take is truly a good fit for you before making an investment or purchasing a financial product.
In scenarios where it’s evident that you’re being given bad financial advice, boundaries are your best friend. Something as simple as, “I’m not looking for any advice right now, but thank you,” or, “That’s an interesting idea, I’ll read up on it when I have time,” can mean the difference between maintaining or damaging a family relationship.
If someone continues to force their opinion on you, this is less a reflection of their financial acumen and more so an indicator of their motives. Legitimately successful people might give financial advice, but they’re unlikely to be emotionally invested in whether you take it or not. Don’t let the bluster of an overzealous family member lure you into taking bad financial advice.
Financial Literacy Will Help You Avoid Bad Financial Advice
Understandably, many people seek advice on financial matters from relatives because they aren’t taught how to manage money. Sound financial education is often not provided in the home and is certainly nowhere to be found in the school system. When you don’t feel confident that you can make the best decisions for yourself, you’re likely to defer to trusted loved ones, which may leave you vulnerable to taking bad financial advice.
Awareness and a willingness to learn go a long way in all aspects of life, and particularly as it relates to finance. If a conversation turns to saving for retirement and you feel like you haven’t done enough to prepare, it could be tempting to take advice from your brother-in-law John who has managed to set aside $3 million for his retirement. But if Brother John has a corporate job and you’re a small business owner, it’s highly unlikely that what works for John will work for you.
Instead of running off to max out the tax-deferred investment account that John thinks you need, consider this an opportunity to educate yourself. For instance, learn the difference between a Roth IRA, SIMPLE IRA, Solo 401(k), and other retirement plan options. Understanding the basics of retirement plan options that suit small business owners is a good first step towards building a retirement strategy that works for you.
As you become more financially savvy, it gets easier to spot bad financial advice when you hear it. When your brother starts to preach about crypto being the only worthy investment and you’ve got to get in before it’s too late, you won’t get swept up in the urgency. Maybe you should consider adding digital currencies to your portfolio. But first, you should consult with a financial expert to strategically determine an allocation that matches your risk tolerance.
Financial Professionals Help You Weed Out Bad Financial Advice
Working with the right professionals to help navigate new territory can ensure you’re moving towards your goals and mitigating risk along the way. When you buy your first home, you will likely hire a real estate agent and a mortgage broker to help you move through one of the biggest purchases of your life. The same is true when you start to make big financial decisions.
Building financial literacy can be an empowering process. When the time comes to implement what you’ve learned, it helps to have an expert on board. Working with a Certified Financial Planner® (CFP) to establish a comprehensive financial plan can provide some clarity. Building a relationship with a CFP starts with clarifying where you are right now, defining your long-term goals, and developing the right strategies to get to where you want to be.
Inevitably throughout your journey, unexpected events will occur that require adjusting course along the way. Divorce, job loss, unexpected illnesses, and many other challenges can and will present themselves without warning. When they do, you don’t want to rely on what may turn out to be bad financial advice from the people around you, even if they mean well.
Ensure You’re Making The Right Financial Decisions For You And Your Family With Caviness Wealth Management
At Caviness Wealth Management, we want to help you make the right decisions to meet your individual needs. We know how much bad financial advice people are subject to—especially around the holidays—and we are here to provide our clients with information and guidance as they work toward financial wellbeing. To see if we can help you clarify your goals and build a comprehensive financial plan towards achieving them, click here to schedule a conversation today.
Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual.
