Financial MythBusters: Social Media Money Myths, Episode 1

There’s no shortage of financial advice out there. Some gets passed down from friends and family, some has been repeated for generations, and more and more of it is showing up on our social media feeds. But when it comes to finances, things aren’t always as straightforward as they sound.

Welcome to Financial MythBusters, a series where we put some of the financial claims we hear to the test. Some are true, some need a little more context, and others don’t quite hold up. For our first episode, we’re starting with claims we’ve seen making the rounds on social media. Are they CONFIRMED, PLAUSIBLE, or BUSTED? Let’s find out.

The Myth: “A massage can be tax deductible.”

Verdict: PLAUSIBLE

Believe it or not, there are circumstances where a massage could come with a tax advantage. If you are eligible to contribute to a Health Savings Account (HSA), contributions may be tax deductible or made pre-tax, and the money can be used tax-free for qualified medical expenses. A massage may qualify as a medical expense if it is primarily used to treat or alleviate a specific medical condition rather than for general health or relaxation. So, your monthly spa day probably doesn’t count, but massage therapy used to treat a medical condition may qualify for tax-free HSA dollars.

The Myth: “Be your own bank and pay yourself interest on a life insurance loan.”

Verdict: BUSTED

Social media sometimes promotes life insurance as a way to “be your own bank,” suggesting you can borrow money and pay the interest back to yourself. In reality, you are generally borrowing against the policy’s cash value, and the interest charged on the loan is not simply being deposited back into your own account. Your cash value may continue growing depending on the type of policy and its terms, but that growth is separate from the interest you owe. Outstanding loans and interest can also reduce the death benefit and potentially put the policy at risk if the loan balance becomes too large. Accessing cash value can be useful in certain situations, but it does not make borrowing free.

The Myth: “A child can have a Roth IRA.”

Verdict: CONFIRMED

It sounds surprising, but there is no minimum age for having a Roth IRA. For a minor, the account would generally be established as a custodial Roth IRA and managed by an adult on the child’s behalf. The key requirement is legitimate earned income. For example, a child paid for actual modeling work could potentially qualify. The work must be genuine, the compensation reasonable, and the income properly documented. Contributions cannot exceed the child’s qualifying earnings or the annual IRA contribution limit, whichever is lower. Birthday gifts and money parents simply label as “wages” do not qualify. When the requirements are met, starting early gives those investments decades of potential growth, although investment returns are not guaranteed, and investing involves the risk of loss.

 

The Myth: “Don’t save while you’re young. You can catch up later.”

Verdict: BUSTED

There’s nothing wrong with enjoying your money while you’re young, but putting off saving entirely can make things much harder later. The earlier you start, the more time your money has to potentially grow and compound, although investment returns are not guaranteed and investments can lose value. (source: https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator). If you wait until your 40s or 50s to get serious about saving, you may need to put away significantly more each month to reach the same goal. That can be especially challenging when those years may also come with competing priorities, like a mortgage, college costs, or caring for family. The goal isn’t to save every extra dollar at the expense of enjoying life today. It’s to find a balance between living now and consistently setting something aside for the future.

The Myth: “You can always trust financial advice on social media.”

Verdict: BUSTED

Social media can be a great place to discover new ideas, but financial advice that fits into a 30-second video rarely tells the whole story. A strategy that works well for one person could be completely inappropriate for someone with a different income, tax situation, family, or financial goals. It can also be difficult to tell whether the person giving the advice is qualified, has a financial incentive to promote something, or is leaving out important risks and limitations.

Before making changes to your finances based on something you saw online, do your research and talk with a qualified financial advisor who can help determine whether the advice actually makes sense for you.

What Have You Heard?

Financial myths can come from just about anywhere, and we have plenty more to put to the test. Have you heard a financial “rule,” piece of advice, or claim that made you wonder if it was actually true? Send it our way, and it may make an appearance in a future episode of Financial MythBusters.