One of the most popular social media apps on earth, TikTok is designed to allow users to make, share and discover short videos. It’s become a way to post cool videos, ads and even money management tips. This trend has also forayed into the world of finance.
The space is also filled with scammers, unfortunately. Here are some common TikTok financial scams you may encounter:
- “Become a day trader and cash in”
This can be a very appealing to those who believe in the “get rich quick” idea. Now that day traders are social media influencers, it’s just one more group to be wary of. Day trading involves time, risk management, effort and a lot of knowledge to make profits. They have taken over social media channels to the tune of $2 billion; look for the hashtag #investing. Beware of tips like “How one investor turned $5,000 into $1 million.” Most often, this is not true says Forbes magazine in a recent article on bad money advice. It can be tempting, but don’t be too quick to jump on the bandwagon.
- Is a celebrity endorsing this product or advice?
A common TikTok scam features celebrities telling stories about how they made a huge profit from buying and selling real estate. But sometimes that advice isn’t relatable to the average person. For example, a celebrity endorsement that says they turned $600,000 into $1.5 million…and you can do it too! Even if it were true, most folks don’t have that kind of money to speculate with. Some people have large risk tolerance; that is, they can afford to lose $20,000 or $50,000 and it’s no big deal. You, however, may not want to gamble junior’s college education away or your better-protected retirement funds or life savings.
- Be skeptical about advertisements
These are the types of ads where the content creator gets paid a commission to mention products in their videos. Do your research before you consider signing up for anything. Is the influencer trying to sell you something? If they seem to be pushing a product or stock, they may have a financial interest in whatever they’re selling. Is the advice too good to be true? If the TikTok sender could actually predict specific stock performance, would they be sharing it with millions of followers? Doubt it. Get rich quick schemes tend to never be true—so stay away from these types of TikTok advisors.
- Other bogus claims
Wealth managers and Certified Financial Planners cringe at the thought of outlandish advice to forget about 401K(s) and IRAs as an investment strategy, and instead put your money into precious metal-IRAs (backed by precious metals instead of stocks and bonds), or cryptocurrency scams. Most of these advice items have a “But” behind them…meaning your personal income and what you may be able afford to lose. Each situation isn’t right for every person.
Another popular TikTok video claims that starting an S-Corporation will help you avoid paying taxes. Also, it says that you can hire your children to work for you for $12,000 per year tax-free and gift these expenses back to your household. Experts maintain that this is wrong for many reasons, the first being that you can only buy things that are considered ordinary and necessary expenses for a business. That new lawnmower? It’s your tax burden, not your S-Corp’s.
Where can you get good financial advice?
Tower has a wealth of free information at your fingertips in the Financial Know How section of our website. You’ll find information on savings tips, budgeting, scams, financial trends and more. You can also view the last five TowerLine newsletters.
Other reliable resources to check out:
Consumer Finance Protection Bureau (CFPB) – This watchdog agency is dedicated to providing financial literacy resources to consumer on such topics as loans, debt collection, student loans and more. Visit their website for more information.
Securities and Exchange Commission (SEC) – The SEC, an independent government regulatory agency, exists to protect investors. They have information on how the stock market works, different investment products and how to vet investment professionals. Visit investor.gov for more information.
Federal Financial Literacy and Education Commission (FLEC) is a commission shared by the CFPB and the Secretary of the Treasury. The commission runs Mymoney.gov, a national financial education website that includes resources on money management, taxes and more.
Resources: Forbes, Gobankingrates.com, Nerdwallet.com, Lifehacker.com, Lending Tree, Consumer Finance Protection Bureau, Securities and Exchange Commission, Grillo Invest, Federal Financial Literacy and Education Commission