Should You Give Financial Advice to Friends and Family?

Financial advice is one of those things that can be tricky to navigate. On the one hand, you may feel like you're in a position to help your loved ones out with some sound financial advice. On the other hand, you may worry about getting sued if something goes wrong or about inadvertently giving bad advice. 

In this article, we'll take a look at financial advice and answer some common questions about it. We'll also explore why it's generally not a good idea to give financial advice to friends and family members! 

Should you give financial advice to friends and family? 

It's a question that many people ask themselves, especially when they see their loved ones struggling with financial problems. While it's natural to want to help out, there are some risks involved in giving financial advice - both for the person giving the advice and for the person receiving it. 

So should you give financial advice to friends and family? Here are a few things to consider before you do: 

• Are you qualified to give financial advice? 
• What is your motivation for giving financial advice? 
• What are the risks of giving financial advice? 

If you're not sure whether or not you should give financial advice to friends and family, it's always best to avoid doing so. Financial advice is a complicated topic, and unless you're a qualified financial advisor, you could end up doing more harm than good. 

You may still want to share your excitement and expertise, and there's nothing wrong with that! Just make sure you do your research first and lead by example. 

You don't need to persuade anyone to do anything with their finances even if you believe it will benefit them. By simply being a leader in financial literacy and good financial practices, you can have a positive impact on those around you. 

Keep reading as we go over a few strategies that can help your loved ones explore financial literacy out of their own desire. 

Can I provide financial advice to friends?

If you're not a licensed financial professional, then you technically can't give financial advice. However, this doesn't mean that you can't offer helpful suggestions or share your own personal experiences. Just be sure to make it clear that you're not dispensing professional advice. If your friend or family member asks for specific recommendations, direct them to a qualified financial advisor. 

Can you get sued if you give financial advice? 

It's possible, although it's unlikely. If you give financial advice that results in financial losses for the person you're advising, they could theoretically sue you for damages. However, most courts would likely find that you didn't have a professional duty to your friend or family member. So it would be difficult to prove that you were negligent. 

Can an individual give financial advice? 

Yes - but again, only if they're licensed to do so. Giving financial advice without a license is considered the practice of "unauthorized financial advisory," which is illegal in most jurisdictions. So if you're not a licensed financial advisor, it's best to steer clear of giving specific recommendations about investments, retirement planning, or other financial topics. 

Why you shouldn't give financial advice

There are a few reasons why it's generally not a good idea to give financial advice to friends or family members. 

First, as we mentioned before, there's a risk that you could be sued if things go wrong. 

Second, even if you're giving well-intentioned advice, it could backfire if the recipient takes your suggestions without fully understanding them - which could lead to financial losses. 

Finally, giving financial advice can damage relationships if the person receiving the advice feels like they're being judged or lectured. 

What qualifies financial advice? 

To avoid running afoul of the law, it's important to know what qualifies as financial advice. Generally speaking, financial advice is any recommendation that relates to investments, retirement planning, or other financial matters. 

So if you're simply sharing your own experiences or offering general suggestions, you shouldn't have any problem - but if you start getting into specific recommendations about what someone should do with their money, that's where things can get dicey. 

How to share financial knowledge without giving financial advice? 

If you want to help your loved ones without crossing the line into financial advice, there are a few things you can do. You can share your own personal experiences and stories about financial success (or lessons learned from financial mistakes). 

You can also direct them to resources like books, articles (like the ones on this website), or online courses that can help them learn more about financial planning and investing. 

Does saying 'not financial advice' make you immune from liability? 

No - even if you prefaced your advice with "this is not financial advice," you could still be held liable. If the person you're advising suffers financial losses as a result of following your recommendations. 

It's always best to err on the side of caution and refrain from giving financial advice. Unless you're a licensed professional. It can be helpful to consult with a lawyer to construct the best disclaimer. To minimize your liability based on your jurisdiction. 

What's the difference between financial education and financial advice? 

Financial education is simply providing information about financial topics, without offering specific recommendations about what someone should do. Financial advice, on the other hand, is giving specific recommendations about financial planning and investing. 

For example, a financial education resource might explain the basics of how to invest in stocks, while a financial advisor would provide specific recommendations about which stocks to buy (or sell). 

Here is an example of what financial education looks like: 

"Financial education is the process of learning about financial products, services, and concepts. It can help you make better decisions about your money." 

Here is an example of what financial advice looks like: 

"I advise you to invest in XYZ stock." 

As you can see, financial education simply provides information, while financial advice gives specific recommendations. 

It's important to know the difference between financial education and financial advice. Financial advice should only be given by licensed professionals, and even then, there's a risk of liability if things go wrong. 

If you're not a licensed financial advisor, it's best to refrain from giving financial advice to friends or family. Financial education, on the other hand, is simply providing information about financial topics - and anyone can do that. 

Conclusion

Giving financial advice to friends and family can be a risky proposition. If you decide to go ahead and do it anyway, just be sure to tread carefully and avoid giving specific recommendations that could come back to bite you later on. And of course, if your friend or family member needs professional financial help, encourage them to seek out a qualified financial advisor.