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Is Getting Money Advice From Friends and Family a Good Idea? Experts Weigh In

·5 min read
GaudiLab / Shutterstock.com
GaudiLab / Shutterstock.com

When it comes to money advice, many Americans look to friends and family for the answers. Key findings in a GOBankingRates survey on money expertise reveal that 46% of 1,001 surveyed Americans have sought financial advice from friends and family over the last year.

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Talking about finances with loved ones still remains a bit tricky. On the one hand, parents who have open discussions about money with their children may be able to help them develop their financial literacy early in life instead of later. On the other hand, and in the current challenging economic climate, it can be detrimental to take advice from friends or family that is not relevant to your situation, or may actually bad financial advice. Where should you go for insight? GOBankingRates spoke to several financial professionals about which risks and benefits to keep in mind when consulting friends and family for financial guidance.

Keep Intention in Mind

Matthew Vitlin, MBA and financial advisor at Northwestern Mutual, said if you are getting financial advice from friends and family, most people can generally assume that these people mean well and want you to succeed and make good decisions. Eliminate the concern, if you have any, that they may try to pull you down or steer you towards something that benefits them.

Speak to People You Trust

One of the biggest benefits in getting financial advice from friends and family is that the advice is coming from people you trust. Unless they work in the industry or want you to invest in their company, Vitlin said you know they won’t directly benefit if you follow their advice. As a result, there is no conflict of interest.

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Talking with people you trust may also allow you to feel comfortable opening up. Grant Gallagher, MBA and head of financial wellbeing at Affinity Federal Credit Union, said convenience and comfort is a benefit of receiving financial advice from friends and family. They’re also usually accessible as a resource, happy to take a quick call or text late at night if need be.

“Depending on the relationship you have with this person — and I would assume it is fairly close and open given that discussing finances is often a taboo subject — you can get the advice you need when you need it, and can likely skip a few steps typically involved in the process since these people already know some of your history and preferences,” said Gallagher.

Remember: They May Have Limited Exposure

A friend or family member’s limited amount of exposure may present a potential risk to you and your finances. Vitlin said that despite the advice someone may have to offer, their range of experience may be limited to them and the people they are close to.

Vitlin uses the example of a friend or family member that advises you to invest in crypto. They made a bunch of money investing in crypto, so it sounds like a good idea at first. However, they may struggle to tell you how it works because they have limited working knowledge of that particular investment strategy. All they know is their limited exposure: that they made money off it.

While the basics of finance have not changed much in the past few decades, Gallagher said the more complicated situations like buying a home, investing and long-term planning have. You can certainly discuss your experiences with friends and family to help reduce your financial stressors, but Gallagher said unless you have a friend or family member who works in the industry and has kept up with these changes, obtaining financial advice is likely best left to the professionals.

Consider the Success of the Source

If you are asking your friends or family members for financial advice, take a step back and evaluate their successes. Do they invest wisely, pay off their debt and manage money carefully? Or do they have a more reckless attitude with money, struggle to pay their bills and often ask you for financial assistance?

Vitlin recommends reflecting on how successful the source is, and how they made their money. You can still listen to their advice, but you may not practice what you hear.

“If your rich uncle got that way from real estate investing, I’d listen to what he has to say on real estate investing, but think twice about any stock tips he has,” said Vitlin. ” I’m not saying they are wrong, but they might not be the best source for that advice.”

Glen Goland — JD, CFP and senior wealth strategist, senior investment advisor — at Arnerich Massena said the risks of taking financial advice from friends and family carry similar risks to taking medical advice from them. Sometimes friends and family may not know what they are talking about and they are not covered by errors and omissions insurance if they give you bad advice.

When it comes to advice on topics like investing or taxes, Goland said they may not know the scope of knowledge they bring to the table, and whether they are speaking from expertise or just enthusiasm.

Include Others in Your Financial Counsel

“Financial advice from friends and family can be very valuable, so long as these voices are only part of the counsel you receive,” said Goland.

Your best bet is to talk with an accountant and with a certified financial planner or investment advisor who serves as a fiduciary. Look for independent advisors whose interests are aligned with yours and with your needs.

By including more professionals in your financial counsel, Goland said you will know you are receiving unbiased advice from a team that understands the issues and is looking out for your best interests.

Consult Your Financial Institution

As you seek out financial advice and explore options ranging from conversations with friends and family to including financial professionals as part of your overall counsel, Gallagher recommends starting with your primary financial institution.

“Most financial institutions’ frontline staff know who these professional experts are, and who to refer you to based on the advice you’re seeking,” said Gallagher. “Assuming you trust them, they will help connect you with experts. If you don’t trust your primary financial institution to look out for your best interests and financial wellbeing, looking for a new FI is your best next step.”

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This article originally appeared on GOBankingRates.com: Is Getting Money Advice From Friends and Family a Good Idea? Experts Weigh In