50% of People Get Financial Advice From This Seriously Unreliable Source

Couple consulting with agent
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Where do you turn when you have questions about money?

All hands point to The Penny Hoarder. Aw, thank you. But we know this relationship isn’t exclusive (and we’re cool with it).

When you’re thinking about taking out a loan, who do you talk to about your options? When you’re ready to up the ante on your retirement savings, where do you trust your money most?

The most recent release of the Federal Reserve’s Consumer Credit Report sheds some light on how most Americans find answers to these questions.

We’re a little concerned.

The study has been surveying U.S. families three times a year for decades, so it helps us see how our approach to financial advice has changed over the years, as well.

Where Do We Get Borrowing Advice?

To gather information about borrowing in 1998, the vast majority of people relied on some kind of human contact:

  • 36% were “calling around.” (For the youngest among us, that’s like an analog Google search.)
  • 44% asked friends, relatives and other people they knew. (Like Yelp, but with IRL conversations.)
  • 32% relied on bankers, brokers and other people who sell financial services.
  • 18% relied on lawyers, accountants and other financial advisers.

Just 11% relied on the internet. Even that sounds like a lot to me, considering you could probably talk to every bank in town in the time it took a computer to dial in to the internet in 1998.

In 2016, more than half — 52% — refer to the internet to inform their borrowing choices.

It’s not clear from the report, but I suspect a lot of that jump includes the accessibility of sites like Credible and Fiona, which make comparing loan options quick and easy.

These financial sites connect you with a variety of potential loan offers for student loans, debt refinancing and mortgages. In one place, you can see how much you could borrow, your interest rate and your repayment period from each lender.

That beats picking up the phone half a dozen times to reach a representative at banks around town. Ugh, can you imagine all the busy signals?!

It seems the World Wide Web is just one tool in a growing arsenal, though. A lot of numbers were up for 2016, so it seems we’re just diversifying:

  • 50% now look to friends and family.
  • 41% rely on bankers.
  • 30% rely on financial advisers.

And, though the number’s seen a fairly steady drop over the years, 22% of people are still calling around to learn about borrowing options. You guys, what even is a phone call?

It’s no surprise the internet has eclipsed newspapers and similar information sources. The number of people consulting print media has dropped 62% since 1998.

Where Do We Get Investing Advice?

People seem less concerned with investment overall, but the resources they use to learn about it have still changed in the digital age.

We’ve apparently always trusted our friends more than bankers or financial advisers:

  • In 2016, 44% looked to family and friends, versus 39% bankers and 37% advisers.
  • In 1998, 39% relied on family and friends, versus 32% bankers and 18% advisers.

Gathering investment information from the internet has skyrocketed — from 8% in 1998 to 41% in 2016. Newspapers and other media dropped by half in that period.

Again, this is probably related in part to the rise of companies offering digital investment services — a.k.a. robo-advisers.

With apps like Betterment, Acorns, Stash and Clink, you can invest with way less than the folks in 1998 had to fork over — we’re talking as little as $1 or $5 at a time.

You can also set most of these apps to automatically withdraw the money from your bank account periodically or even toss in a few cents at a time when you make purchases with a debit or credit card. That certainly cuts down your calls to a broker!

While the internet has replaced print media as a source of investing information, I’m surprised to see many of us still rely on good old-fashioned conversation for advice, as well:

  • 13% are still calling around.
  • 44% look to family or friends.
  • 39% consult bankers.
  • 37% consult financial advisers.

Where We Get Financial Advice: the Good and the Bad

While some people might worry about our reliance on “the internet” for financial advice, I know it helps connect us to plenty of good information sources and tools.

What worries me more about this report is how many people rely on friends and family for financial information. In most cases over the years, this was the most common source.

Not sure about you, but my friends and family are not bankers, accountants or financial advisers. They’re not brokers. Most aren’t even good at math.

If you’re asking unqualified people for financial advice, they could just be passing on myths — or straight-up lying.

But I saw a couple of small wins for financial literacy in this report.

We may have become privy to the fact that bankers and other people who sell financial services don’t always have our best interest in mind, compared with certified financial advisers, who are required to. In 1998, 27% more people consulted bankers for investment advice than consulted financial advisers. Now the two are almost even: 39% bankers and 37% advisers.

While some information sources have fallen by the wayside in favor of the newer-better-faster, this report shows one positive trend: We seem to seek more information about our finances.

Regardless of what kind of technology (or lack thereof) we use to obtain it, it looks like we’ve become more interested in gathering information from several sources so we can make informed choices about money.

We’ll call that a win.

P.S. If you want to jump on the internet train yourself, we’ve got special deals for some of those robo-investing apps I mentioned:

Dana Sitar ([email protected]) is a senior writer/newsletter editor at The Penny Hoarder. Say hi and tell her a good joke on Twitter @danasitar.