Claude, Chat, LinkedIn and TikTok: How Much Should I Put in My 401K?

As we get further from April 15th and closer to May, our thoughts turn from the pain of TurboTax to happier things: cookouts, beach days and baseball games under the stars. And May is also graduation time, a time of both happy celebrations but also a formidable transition into the professional world. I was lucky enough last week to serve on a panel talking to recent graduates who were looking for financial advice. For the most part, they asked phenomenal, thoughtful questions. But some of the questions that we got were weirdly specific and somewhat strange. Eventually, as we got more and more of these unique questions, I began to ask the questioners where they got those questions from. Unanimously they were from social media or AI.

That night, being curious about what I learned, I began a journey down the AI/social media financial advice rabbit hole. My prompts were all some version of “new college grad looking for financial advice,” but some of my searches and inquiries took me in different directions that included investment specific, behavioral, tax and budgeting. After a week or so of these searches, here is what I learned:

There is some good advice out there

I am going to be honest. Given what I do, and the belief in the “humanity” that should inform all financial advice, I was skeptical that I would find any financial advice worth taking.

I was wrong. There is a lot of solid advice on social media and in “conversations” with Claude, ChatGPT, and Co-Pilot. Some examples were the power of creating financial habits, balancing debt and investing, the time value of money, and the clarifying strength of budgeting. For example, I found Ramit Sethi’s posts on guilt-free spending, realistic budgeting, and extreme frugality incredibly insightful and immensely helpful to a new graduate looking to unleash some pent-up financial demand without being economically reckless. Also, one of my personal favorites, Morgan Housel, has some amazing wisdom on financial mindset, neurology, and behavioral finance. As I dug deeper into more material, I would say that this is where I found social media and AI most helpful: explaining how financial psychology (and neurology) work and providing ideas on creating habits and mindsets to not fall into harmful traps.

There is some awful stuff out there, too

On the complete other end of the spectrum is some hot garbage. As I expected, and was confirmed, there is a plethora of “advice” on social media about how to invest for instant wealth.

These “get rich quick schemes” had no credibility and played off unfortunate searchers looking to improve their lifestyles without time, discipline, and hard work. Some examples are market timing strategies that are “cheat codes,” “winners never diversify” (see Gates and Zuckerberg), “day trading strategies to beat the amateurs,” and “tax tips to make your side hustle blow up.” These themes permeate social media with authors looking to sell their ideas to unsuspecting graduates who want to achieve success sooner and easier than good advice would allow them to do.

Financial advice should be treated like any other “advice” on social media: if it’s too good to be true, look at the motives of the advisor. When their pockets are filled by your undeserved optimism, run from it not to it.

Somewhere in the middle: the story of the “median” graduate

On the panel, most of the questions I got were of the nature of “conventional wisdom.” “I read that you should put X% in your 401(k). Is that right?” “I read that your house payment should be X% of your take home pay. Thoughts?” “I read that no one should spend more than $X on a vacation before the age of 30. I was thinking about going to Spain with my best friend but now am rethinking it.” In my experience, the most common financial advice or information on social media is this “conventional wisdom” or “rule of thumb advice.” “Just put 15% of your income in the S&P 500 each paycheck and you will be able to retire when you are 50.” The question each young professional was asking the panel was: good advice or not? The reason heuristics exist is that they represent good advice for most people or for the median person. In other words, if a person took this advice, chances are they would be happy they did. And I would concur. Most of this conventional wisdom was good advice for most people.

The problem is that you might not be the median person. What makes most people happy and successful could make you miserable and a failure. As Ted Lasso told Coach Beard: “All people are different people.” Good financial advice is that which furthers your happiness, success, fulfillment, and purpose. That could be conventional wisdom, but it might be the more unique and valuable unconventional wisdom. That type of wisdom only comes from customized advice from an expert in being a financial biographer, analyst and coach. A person who collects your story, aligns resources with purpose and then coaches you through the tough times and hard decisions.

Social media speaks to the masses.

An advisor speaks to you.