Is Getting Personal Finance Advice from Reddit the Right Thing For You

• Author: Kelly Cooke
• Posted: 2024-09-09

One of the effects of the internet and smartphones is a democratization of personal finance. People are reading and getting more personal finance information than ever. However, not all of these sources are entirely reliable. In the wake of the GameStop stock roller coaster, there has been much focus on Reddit as a source of investment advice and financial information. More than ever, people are getting tips from this source and backing them with their own money. However, people need to be careful about whom they listen to as an investment and personal finance expert.

Reddit Could Motivate You and Give You Support When Taking Control of Your Situation

First, let us start with the benefits of Reddit and other chat boards that discuss personal finance. These forums at least get us talking about important financial issues. In the past, people simply did not talk about personal finance. They may have discussed hot stock tips sometimes, but financial wellness was not as major of a concern. Reddit's forums promote a culture of financial wellness that people take on as one of their mantras.

Seeing other people discussing personal finance and sharing their own stories can be motivating for someone who is just beginning to think about their own money situation. It is encouraging to see so many people talking about finance. In a way, it is empowering to see others who have taken control of their own financial life and succeeded. If you have placed a high premium on financial health, seeing others do the same can be a validation of a major focus of your life. In some ways, Reddit could be a mutual support forum for people encouraging each other to adopt healthier financial habits. In some cases, Reddit users comfort others who are going through difficult financial times and reassure them that everything will be OK.

Filtering Out the Junk from the Sound Advice Is Hard

On the flip side, you should listen to the spirit and intent of Reddit groups while being very careful about the advice that you follow. One of the dangers of Reddit is that you never quite know who is on the other end of the computer. The persona that you could come to swear by may be completely contrived and invented. It could be someone who is completely making it up as they go along and presenting themselves to the internet public as an expert. This is completely different from reading someone's work on a reputable website such as CNBC or MarketWatch. There is no accountability whatsoever from someone who could give hit-and-run financial "advice" of Reddit.

The real problem could be the nature of the advice given. For example, while Reddit traders made out quite well in the GameStop short squeeze, the sheer audacity of what they were attempting defied logic. They happened to get lucky by catching lightning in a bottle. Nonetheless, devoting a significant portion of their net worths to a speculative stock that was heavily shorted by Wall Street was a foolhardy endeavor at best. This is just one example of some of the outlandish advice that you will see on Reddit.

The rule of thumb is that you could be more comfortable paying attention to the tradition financial advice that you see on Reddit about things like credit and paying off debt. However, there is such a wide variety of "advice" available on the personal finance forum that you need to be very careful. In addition, much of what you would find on Reddit is not anything different from what you would find on a more traditional source. However, these more traditional websites would not have the clutter that you would find on Reddit. Thus, you would not need to filter through the junk to get the good advice. There is enough garbage on Reddit that you may not know what is quality by the time you find it.

Our verdict is that you can use Reddit for support and encouragement when you are looking for inspiration to take financial control. As for the substance, be careful what you internalize. Some investment "advice" can be just plain bonkers and could lead you to do dumb things with your money. In the end, you are the one who decides what advice to heed, and you should take things with a grain of salt while deciding what works best for you.