“Finfluencers”: How Social Media Has Influenced Financial Decisions
In a world where so much information is at always the tip of your fingers, it is easier than ever to get answers to an array of questions. Along with the positives of quickly available information comes the risk of misinformation. While these issues have been present since the beginning of the information age (at least), social media has grossly increased the spread of misinformation. Popular social media platforms like TikTok and Instagram are filled with social media financial influencers, many of whom have been labelled as “finfluencers.” Often times, those users spread false confidence by guaranteeing profit for investing in specific stocks, promoting get-rich-quick schemes, and sharing completely inaccurate information about anything from credit cards to the inner workings of retirement accounts.
In addition to occasionally finding an informative video or post online with good financial advice, a growing number of people are intentionally seeking advice from social media. TikTok, Instagram, Twitter, and Facebook have become breeding grounds for financial “advice.” According to a credit karma survey, 56% of Gen Z and Millennials turn to social media for financial advice, and 51% have acted on the financial advice given to them by someone on the internet[i].
Platforms like Reddit have specific forums, or Subreddits, where individuals can ask for advice on insurance, credit cards, investing, taxes, retirement, and more. If there’s a question, there is almost definitely a corresponding post. Top posts every year can have thousands of questions and comments where anyone can reply. The Subreddit called “Personal Finance” has 15.5 million members. The posters on this channel propose a current situation or problem they’re facing and sometimes hundreds of people comment recommendations. Pros for this type of environment are that you aren’t getting just one person’s advice, but rather you are getting a slew of information that you can sort through. Commentors can critique each other’s suggestions and “up vote” advice that is (or at least seems) more sound. While, again, seeking investment advice from the internet may not be wise because you’re unable to vet the credentials of those offering advice (or easily obtain advice that fits your specific needs), it is interesting to observe how the Wisdom of Crowds phenomena can come into play in a forum like this.
It is encouraging to know that young people are taking it upon themselves to research financial matters. They are thinking about their finances and are interested in learning more about budgeting, debt, taxes, savings for their future, and investing. According to a FINRA study, 31% of Millennials were under the age of 21 when they began to invest while only 9% of baby boomers where investing by the same age[ii]. While there is still some time that needs to pass before we can study more of Gen Z’s behavior, social media and the information available from platforms like Robinhood, lead us to believe that a growing number of Gen Zers will also be investing in their early in life. While other factors are in play, like researching how Gen Z’s access to an abundant amount of information may make them more inclined to invest in meme stock, it is rewarding to know that there is a growing number of individuals who are seeking financial independence and literacy at a younger age.
Knowing that young people are going to use the internet to seek investment advice, what should they look out for? Since the internet and social media is powerful, here are a few important things to be aware of when determining credibility:
Beware of the Short-Term Guarantee
Social media is filled with people sharing stories about how to quickly make money from investing. Clickbait titles for videos like “how to earn $18,000 in a month at the age of 18” draw young viewers in and share “just how easy” it is to make money by doing simple things like leveraging their portfolio, investing in real estate, and day trading to earn a quick buck. While these activities can be profitable for some DIYers, advertising this as a guaranteed quick buck with limited effort is a false claim. Remember, if an individual had a sure-fire way to quick profit, they probably wouldn’t be sharing their secret with the world.
Good Advice Isn’t One-Size-Fits-All
While there is a lot of bad advice on the internet from individuals who don’t have the proper credentials to back up what they’re selling, you can also find some creditworthy advisers. When you are faced with a blanket-statement recommendation, take it with a grain of salt. Every individual has their own set of considerations when it comes to their financial picture. Good financial advice is based on a deep understanding of your personal and financial circumstances. When internet advisers provide advice to millions of people at a time, they have to make a lot of assumptions (a number of which won’t apply to your financial circumstances). If you are going to seek financial advice online, take a blanket recommendation as a starting point to building out your decision. From there, formulate questions specific to your situation that you can bring to a CFP® Professional .
The availability of information is an incredibly powerful tool everyone can reference to be more informed, but users need to be cautious when consuming unvetted media. When seeking financial advice, be sure you are looking at the full picture and remember nothing is guaranteed. Always look for multiple creditworthy resources and seek out a professional for personalized recommendations that fit within the context of a comprehensive plan.
After reading through this piece, you may be wondering how we encourage young people to establish strong relationships with their finances; one way is through practicing financial literacy as part of the process of implementing intergenerational wealth planning, which you can read more about here.