Don’t Rush to Follow TikTok’s Money Advice: Here’s Why – NBC New York

• Financial TikTok, also known as #FinTok, is now one of the most popular sources of financial information, tips and advice, particularly among Generation Z.
• “High budgets,” “cash abundance,” and the “no spending” challenge are just a few of the latest money-saving trends that are going viral.
• According to experts, there is no substitute for establishing a routine that you can maintain over time.

From hoarding cash to making loud budgets, TikTok is packed with ways to build wealth, and more and more people are taking notice.

Financial TikTok, also known as #FinTok, is now one of the most popular sources of financial information, tips and advice, particularly among Generation Z.

With less access to professional advisors and a preference for obtaining information online, members of Generation Z are more likely than any other generation to engage with content from finfluencers on TikTok, YouTube and Instagram, according to a CFA Institute report.

More from Personal Finance:
The ‘high budget’ is in fashion
Nearly half of young adults have ‘monetary dysmorphia’
This is what’s wrong with the ‘100 envelopes’ method

In fact, members of Generation Z are nearly five times more likely than adults ages 40 and older to say they receive financial advice (including stock tips) from social media, according to a separate report from CreditCards.com.

But even the best advice can backfire. Here’s what you need to know before jumping into the latest money-saving trend.

‘High budgets’ can ‘lead to frustration’

One of the biggest trends of the year is the “high budget,” which encourages consumers to take control of their finances and express their conscious choice about money over other activities, such as going out with friends.

While reducing discretionary spending is key to improving budgeting, limiting social interactions also comes at a cost, according to Paul Hoffman, a data analyst at BestBrokers, who wrote a recent report on FinTok’s harmful trends. Before turning down a movie or dinner date, consider that declining such invitations can “lead to frustration and emotional distress,” he said.

There may be better ways to cut back, Hoffman advised, without sacrificing time with people close to you. “It’s important to find a balance between saving and doing enjoyable activities,” she said.

The ‘100 Envelopes’ Trick Creates a Missed Opportunity

More young adults are also trying the “100 envelope” method, which suggests saving an extra dollar each day for 100 days. On the first day, you’ll set aside $1, then $2 the next day, and so on, so that at the end of the 100-day period you’ll have more than $5,000 saved.

This seems like a good idea “with a relatively low ceiling,” according to Matt Schulz, chief credit analyst at LendingTree. However, “if there was ever a time when you shouldn’t keep your money in a binder, it’s today when you can get 4% to 5% or more back in these high-yield savings accounts,” he said. .

After a series of interest rate increases by the Federal Reserve, some high-yield online savings accounts now pay even more than 5%, according to Bankrate.com, well above the rate of inflation.

In this case, if you had $5,000 in a high-yield savings account earning 5%, you would have earned approximately $250 in interest in a year.

‘Cash filling’ also loses interest

Another envelope method, called “cash stuffing,” advocates dividing your spending money into envelopes that represent your monthly expenses, like groceries and gas, to stay on budget and out of debt.

When you spend cash from an envelope, you are either done spending in that category for that month or need to borrow from another envelope.

However, hoarding cash not only misses out on the best returns in decades, it also leaves you vulnerable to theft and could forego the protections that come with consumer banking.

Whether and to what extent you are covered in the event of theft may depend on your home insurance policy, while banks are covered by the FDIC, which insures your money for up to $250,000 per depositor, per account ownership category.

“No Spend” Challenges Can Be Hard to Sustain

Alternatively, the “no spending” challenge promotes completely eliminating all non-essential purchases for a week, a “no shopping month,” or even an entire year, and putting money that would otherwise go toward dinners or new clothes toward a long-term plan. financial objective.

“Gamification can be kind of fun,” Ted Rossman, senior industry analyst at Bankrate, recently told CNBC. But like any other quick fix, these challenges could be difficult to sustain over time.

Instead of following the latest extreme fad, “it’s again about setting a budget and setting expectations,” she said.

Ultimately, there are no shortcuts to practicing good financial habits, most experts say.

“No trick can teach you self-control, conscious spending, or how to keep your balance low,” Hoffman added.

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