Fact-Checking Financial Advice: 4 Steps For Separating Fact From Fiction

Fact-Checking Financial Advice

In my last few blog posts, I’ve focused on the importance of developing a healthy sense of awareness and skepticism when it comes to the forces that influence our financial decisions—mainly, the media and our emotions. Still, making good decisions also requires the right mix of education and advice. So, how do you know which information to pay attention to, and what’s just noise?  In this last installment of the blog series, I’ll give you a plan for fact-checking financial advice so you can separate fact from fiction.

Your 4-Step Guide to Fact-Checking Financial Advice:

Step #1: Eliminate Low-Hanging Fruit

This does NOT mean you should disregard all opposing viewpoints. As you may recall from my last post, confirmation bias causes us to favor information that supports our beliefs and ignore the rest. But what if our beliefs are mistaken? We can combat confirmation bias by considering any reasoned argument that:

  1. Is well-informed, with an objective perspective and minimal conflicts of interest;
  2. Prioritizes judicious decision-making over strident calls to immediate action;
  3. Inspires a thoughtful approach to touchy topics, instead of feeding fervent fires.

Put differently, when considering whether a claim is credible, whether or not you agree with it doesn’t matter. What matters is whether it represents a genuine pursuit of the truth.

That being said, you can use the same criteria to eliminate information that’s blatantly biased and/or unreliable. In addition, be particularly wary when you come across startling information—good or bad—filled with superlatives. As this Wall Street Journal article reports, we’re all prone to extremity bias. In other words, we have a “tendency to share the most extreme version of any story to keep our listeners rapt.” Thus, even if a provocative claim contains an element of truth, it may be overblown.

Once you’ve eliminated the weakest claims, you can begin to fact-check the rest.

Step #2: Do a Reality Check

Don’t discount your initial reaction to the advice. If a claim makes you wonder, “Really?”—especially if it’s a relatively extreme position—a good first step is to refer to one or more fact-checking resources.  Snopes, Vote Smart, and FactCheck.org aren’t infallible, but they can help you filter out any flagrantly false claims before sharing or acting on them.

Step #3: Google It

Remember the days when if we didn’t know something, we’d just have to sit there and wonder? Now, the moment a question pops into our heads, we can pull out our phones and get the answer in seconds. So, why not do the same thing when fact-checking financial advice?

Google can be a great resource for determining whether advice is good or bad. However, don’t just depend on the most popular hits. Instead, try to identify the most reputable sources within your search results. Examples include academic and government institutions, respected journalists, quality trade publications, and subject matter experts.

Finally, remember to consider the source’s dominant motivations, their depth of experience, and their measured versus emotional approach. Ideally, you’ll be able to find multiple credible sources to substantiate, strengthen, and/or clarify the financial advice you’re evaluating.

Step #4: Go to the Original Source

Although certain high-profile figures might disagree, merely stating a fact does not make it so! If a financial pundit or self-help guru (or anyone, for that matter) makes a claim in the form of advice, make sure they can back it up with facts. If they can’t produce their sources, it’s best to ignore their advice.

Whenever possible, take the time to verify and confirm the validity of original sources—even if it requires a few extra minutes of internet research. By the way, don’t be too daunted to read through academic studies or similar reports, so long as they too can be considered reliable. Like any skill, it gets easier over time.

The Advisor’s Essential Role

As information consumers, we’re inherently susceptible to falling for fake news (especially when we’re tired, by the way). The droves of information out there that’s unwittingly or deliberately false doesn’t help, either. Still, it may surprise you to know that fact-checking financial advice is actually the easy part. Unfortunately, keeping our own emotions and behavioral biases in check is far more challenging. However, that’s where working with a financial advisor can help.

I hope this blog series has given you the tools you need to 1) become more aware of your inherent biases and 2) not let them affect your ability to make rational, well-informed financial decisions. If you’d like personalized feedback on your current financial situation and a plan to move forward, I encourage you to request a free retirement assessment.

In addition, you can download The Ultimate Retirement Checklist For Small Business Owners and Entrepreneurs to get immediate answers to your biggest retirement planning questions.

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