For some people, getting free financial advice is like getting a free t-shirt. It doesn’t matter what it looks like or who’s offering it. Even if it doesn’t fit, you’re not going to refuse it.
That sentiment may be why 34 percent of Americans go to their family or friends first for money management advice. But getting free financial advice isn’t entirely the same as getting a free t-shirt. If you aren’t careful, one wrong suggestion could end up costing you in the long run.
3 questions to ask when getting free financial advice
Before going to your family for free financial advice, make sure you consider their experience, understanding, and biases about a topic.
Here are three questions you should habitually ask before taking any free financial advice to heart.
1. Have they been through this before?
If your family is like mine, they have a strong opinion about everything. We’re not afraid to share what we think.
If this is the case for you, try to avoid asking a family member’s opinion unless you know what their experiences have been. This wariness is especially important for complex financial decisions.
For example, if you’re buying a home or choosing a mutual fund investment without the correct information, you can experience problems down the road. Someone who has been through the same process can share the lessons they learned along the way.
They can also alert you to pitfalls and share mistakes they made so you can avoid them. As the second youngest child in my family with four older siblings, I’ve had the opportunity to learn from the experiences of my brothers and sisters.
Recently, my wife and I were in the process of buying a home. As the contract was underway, we declined the home warranty plan our real estate agent offered.
A few days later, my wife was talking to my brother and learned that he’d used his home warranty each year since his family moved into their home. The decision has saved them thousands of dollars in appliance repairs.
Since the house we were buying was old and already had an issue with one of its major appliances, we took the advice, went back, and added the warranty.
That’s not to say a home warranty is the best decision in every situation; there are pros and cons to consider. But in our case, my brother’s experience helped us make the right decision for us.
2. Do they know what they’re talking about?
Some financial decisions look simple on the surface but can become complicated the deeper you dig. For example, the general concept of investing is simple: you commit money to something with the expectation of receiving income or profit in return.
Your best investment option, however, depends on your experience, risk tolerance, time horizon, and other preferences. The result of those factors may vary wildly from that of your family members. When it comes to investing, you’ll want to be wary of any free financial advice that doesn’t begin with questions about these factors.
A sibling may recommend investing in penny stocks because you can earn big returns quickly. In reality, penny stocks are highly volatile, and you can also lose big. Therefore, penny stocks are not a good investing idea for beginners.
3. Are they biased?
As the term suggests, personal finance is a personal affair. What works well for you may not work for someone else, but it can be hard to look past your bias when it comes to things that have been helpful to you.
A sister may highly recommend a car insurance company because “they have great rates.” It’s possible, however, that based on your driving record and insurance needs, another insurer may offer you cheaper rates. In this case, it would be better for you to shop around and compare.
Your siblings or parents may also have different priorities and goals than you. What’s more, they may be willing to spend money in categories where you prefer to be frugal. Keep this in mind, especially if you notice them try to change your priorities.
Asking your parents for money management advice can be a double-edged sword. They want you to be happy and successful, but those emotions may drive them to recommend something that may not be in your best interest after all.
Keep this in mind when you hear their opinion on something finance-related (especially when it’s unsolicited).
Other ways to get free financial advice
If you’re not sure which direction to take when managing money, asking your family for free financial advice can be a great way to help you get on the right path.
In some instances, however, it can do more harm than good. As you seek financial advice, take the time to do some research on your own to vet the advice you get from your family.
Chances are well-researched, unbiased (and free) financial advice to help you make the right decision is just an internet search away.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for SoFi.
2 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.50% APR (with Auto Pay) to 7.27% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 17, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/17/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.49% effective March 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.50% – 7.27%1||Undergrad & Graduate|
|2.50% – 7.12%3||Undergrad & Graduate|
|2.53% – 8.79%4||Undergrad & Graduate|
|2.50% – 6.65%2||Undergrad & Graduate|
|2.55% – 7.12%5||Undergrad & Graduate|
|3.00% – 9.74%6||Undergrad & Graduate|