Blanket Advice, Big Mistakes: The Risks of Following TikTok Finance Trends

Yes, we all love TikTok—for entertainment. Let’s leave it at that. Not all financial advice on TikTok is bad, but plenty of it misses important nuances. Blanket advice might serve as a starting point, but it should never replace a personalized plan.

Here’s a closer look at three beginner tips I recently came across and the important details they left out.

1. “Get Rid of Consumer Debt”

Consumer debt includes credit cards, auto loans, student loans, and personal loans. This advice is solid—but it’s incomplete. The missing piece? You need to know which debts to tackle first. Typically, credit card debt carries the highest interest rate and should be prioritized.

Let’s break it down:

• Example: A $5,000 credit card balance with a 25% interest rate costs you approximately $1,250 annually in interest alone.

There are two main options to eliminate debt: spend less or make more. I find Dave Ramsey’s strategies for reducing debt extremely helpful, but beware—his blanket advice can be limiting. For example, he advocates for paying off your mortgage quickly and avoiding credit cards entirely, which may not align with everyone's financial goals.

2. “Open a High-Yield Savings Account”

While high-yield savings accounts can be useful, they should primarily be reserved for emergency funds. For anything beyond that, there are more efficient ways to use your cash.

Let’s examine the realities of relying on these accounts:

• Example: Assume a balance of $100,000 and a 4.5% interest rate over 12 months. You’ll earn $4,500 in interest.

• Tax Impact: If you’re in the 22% federal tax bracket, here’s what happens: 

  • Taxes on interest: $4,500 × 22% = $990

  • After tax interest: $3,510

Seeking a more tax-efficient strategy (that doesn't distribute taxable dividends) can help boost after-tax returns. This underscores why blanket advice often fails to address the finer details, like more strategic ways to grow your wealth.

3. “Buy a Stock This Year”

This advice came with the recommendation to do so in a Roth IRA, which is solid advice if you’re eligible to contribute. However, the suggestion that the barrier to investing is buying one stock is misleading.

Here’s why:

If you don’t have any money saved for retirement, diving in and buying a single stock—especially something like GameStop just because TikTok said so—is a poor strategy. There are smarter ways to start investing, like focusing on broad-market index funds within your Roth IRA or building a diversified portfolio.

The Devil Is in the Details

TikTok financial advice is often oversimplified. While it can provide a foundation for your financial journey, digging deeper and considering your unique circumstances is vital.

Broad advice rarely paints the full picture. As always, details matter.