Is TikTok’s Financial Advice Any Good? As an Economist, I Say Yes

TikTok stands accused of poisoning the minds of Gen Z, making them hate America and giving them a distorted view of history. Without getting into all that, I will say this: TikTok is not the worst place to learn about personal finance.

A few years ago, James Choi of the Yale School of Management compared the advice of the most popular personal finance books with what the academic literature suggests. Nowadays, young people are more likely to get their advice from so-called finfluencers on social media than from books. Inspired by Choi’s research, I spent some time recently watching the videos of some of the most popular personal finance influencers on TikTok.

While not everything they say squares with what economic and financial research advises, they do offer some useful tips. There are some cranks, as there are in every medium, but most of the advice is similar to what you might find in a book, though geared to the financial needs of twentysomethings. The most common advice includes:

  • Have a emergency fund, enough to cover a few months of salary, in a high-yield savings account.
  • Keep a budget and make sure you save some money, especially if you get a 401(k) match from your employer.
  • Invest in the market, preferably an S&P 500 index fund, though if you have a long enough time horizon, consider picking some individual stocks, too.

This is a little different from what you might find in economic and finance journals. First, economists assume the goal is not necessarily to get rich — to have a million dollars, say, by the time you’re 30 — but to have smooth and predictable consumption throughout your life. When you’re 22 and not making much, saving may not be your biggest priority. Economists would also argue that having some financial cushion in low-risk assets is advisable — but not necessarily if you have lots of high-interest credit card debt because interest rates on credit cards are so much higher than those on a high-yield savings account.

Another difference is in how you invest. Economists also favor diversification, and index investing over active management. But we also believe that an important part of diversification includes foreign stocks. The TikTok crowd has a very strong home bias. We economists would argue this leaves investors under diversified, because it concentrates risk on the fortunes of one country: the one you live in, whose economy is highly correlated with your wages. The S&P 500 is also highly concentrated in a few big stocks.