What to remember when friends and family give you financial advice

We all sometimes desire sound advice from those we respect, but remember these things before taking advice.

06:45 19 May 2014

We like to believe that family knows best, and we often look to those we know who seem to be successful. The reality is that we often don’t know the entire financial situation or backstory of our relatives and friends, and their seemingly good advice may not apply to our own financial situations because they don’t know the entire financial story. 

 

Unless you have professional financial planners as relatives, here are a few things to keep in mind when well-meaning relatives start offering advice. 

 

• Financial experience

 

Even among your relatives there will be varying levels of financial knowledge and experience. In some cases you may learn more from stories about what to avoid 

if they give you an entire explanation, but their experience may be different than your own. You have to make decisions based upon your experience and knowledge 

 

• Perception differences

 

One of the most important points to remember with advice-dispensing relatives and friends is that everyone has a different comfort zone when it comes to risk and investments. One person may think of investing in the stock market as a huge gamble, while someone else may think nothing of investing in a sketchy startup business and losing thousands of dollars. Also remember that many times perceptions are flawed because the person lacks sufficient knowledge to understand or make educated decisions. 

 

• Financial backstory

 

This was mentioned a little bit earlier, but unless you continually share everything about your finances with your family members, they don’t have the information necessary to offer you applicable advice. Their advice is based upon their financial situation, not yours. 

 

• Attitudes

 

There are many different attitudes about finances. Some people don’t see retirement planning as necessary outside of company pensions, while others may feel you should have three separate retirement accounts at the very least.