Taking financial advice from loved ones could make you £42,000 worse off. Here’s why

As children, we rely on our parents to teach us everything about the world. By observing them, following their examples, and listening to their advice, we gradually learn how to navigate life.

Once we reach adulthood and become more independent, we often turn to our parents and other loved ones for advice about managing our finances. In some cases, this can be beneficial as they’ll teach you the basics of budgeting and how to complete simple tasks such as paying bills.

Unfortunately, when you take financial advice from your loved ones about more complex topics, you could make decisions that don’t align with your goals and may end up worse-off as a result.

Taking advice from loved ones could make you £42,000 worse off

A new survey reported by FTAdviser revealed that 29% of people learned how to manage their money from their parents, with an additional 11% seeking advice from friends. Also, 47% of people searched for information from free online sources including personal finance websites and social media influencers.

Earlier research reported by Professional Adviser in 2023, found that only 11% of people surveyed had sought financial advice, despite 49% feeling uncomfortable with their level of retirement savings.

Consequently, people may be more likely to rely on their loved ones to help them manage their finances.

Unfortunately, new analysis reported by FTAdviser suggests that this could make you, on average, £42,000 worse off over the course of your lifetime.

Read on to learn why this might be.

76% of pupils finish education without the financial knowledge they need for adulthood

You might turn to your loved ones for advice about your finances because you have a significant gap in your knowledge. You wouldn’t be alone in this as, unfortunately, financial education in UK schools is often lacking.

Indeed, according to the Money and Pensions Service, 76% of teachers believe that pupils leave school without the financial knowledge they need for adulthood.

This has a knock-on effect and means that financial literacy rates in the UK are very low and research from Wealthify demonstrates this. They asked members of the public questions about 10 important financial topics.

Respondents needed a score of 6.5 out of 10 to pass but 73% of people fell below this benchmark.

As such, your family and friends may lack knowledge about financial matters. When you seek their help, they may simply be passing poor information from one generation to the next. Ultimately, this could mean that you make decisions that work against your goals.

It’s also important to note that your family and friends manage their wealth based on their own unique goals. So, any advice they give you might not be suitable for your own financial plan.

Conversely, as professional financial planners, we have a deep understanding of financial matters. Most importantly, we can discuss your long-term goals with you and make recommendations based on your personal situation.

Your loved ones may be too emotionally involved in your finances

Bringing too much emotion to your financial planning can be counterproductive as it often leads to illogical decisions. Unfortunately, when you take advice from your loved ones, it may be more difficult to separate the emotions and make decisions based on information and reason.

For example, parents likely won’t want to see their children lose money on investments because they worry about their security. As a result, they may warn you against investing altogether, and this could make it more difficult to build wealth and achieve your financial goals.

If parents are considering downsizing to help fund their retirement, their children might advise against selling the house because they have a personal attachment to it. Yet, it might be the most sensible financial move for their parents.

These are just a few examples of how being emotionally involved could mean that your loved ones fail to give you objective advice that helps you reach your goals.

That’s why working with a financial planner can be so useful. We act as an impartial third-party who doesn’t have the same level of emotional involvement.

You could be at greater risk of scams or making unsuitable investments

When investing money or purchasing financial products of any kind, it’s important to be vigilant and perform due diligence to avoid scams.

According to IFA Magazine, Brits lost £3.2 million to scams every day in 2023. The types of scams vary but criminals increasingly use social media to target their victims. Their methods are also becoming more complex, so even if you’re knowledgeable about financial matters, scammers could still fool you.

If you’re taking advice from friends and family members, you might be more likely to fall for a scam or make risky investments. This is because they don’t necessarily know how to perform due diligence and check the legitimacy of financial products. Consequently, they could be recommending risky and potentially fraudulent investment opportunities.

Additionally, they might not understand your personal goals so their recommendations may not align with your financial plan.

The good news is that if you seek professional guidance, we can perform due diligence and suggest legitimate investments that align with your goals and your attitude to risk.

Get in touch

While loved ones can sometimes offer useful advice, they may not have the knowledge to support you with your financial plan. That’s where we come in.

Please give us a call on 01276 855717 or email info@braywealth.com today.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.

Approved by the Openwork Partnership on 04/07/2024