More than half the world’s population is now on social media. The average time we spend scrolling comes in at nearly 2.5 hours per person. [1]
It’s a source of entertainment, news and advertising. And, for a growing number of people, it’s now the go-to place for tips and hints on what to do with their money.
Audiences are looking for the briefest nuggets of information, provided to them by ‘finfluencers’ (financial influencers). Telling them how to save their money – and how to spend it.
In the last couple of years, there has been rapid growth in people subscribing to platforms such as TikTok, Instagram and Spotify, as modern savers look beyond more traditional sources such as the business pages of newspapers. The hashtag #FinTok now has more than 2.2 billion views, with short videos of less than a minute giving tips on everything from car-insurance hacks to guidance on how to invest.
Some of the biggest social media stars earn megabucks for their hints and tips. Erika Kullberg, for example, one of the most-followed finfluencer names on TikTok, earns more than £6,000 per sponsored post.
While this new avenue brings benefits, such as giving a wider audience a financial education, it also comes with risks.
A new generation of savers
The trend is partly a generational thing. Research from 2021 showed that in the UK, one in five young people use social media for financial advice. For those classed as Gen Z (born between the mid-90s and mid 2010s) going online is increasingly a trusted source of information.
The financial world embracing social media and technology can certainly bring some huge benefits. To a generation used to consuming their news in a different way, exciting, easily digestible formats can help guide people on how to use their cash more wisely and give them the basics to navigate their finances.
Financial companies have already seen this as an opportunity to increase levels of financial literacy, particularly among younger people. Barclays LifeSkills programme is teaching its 13 million+ users more about using money, while GoHenry, gives 6–18-year-olds financial education via short videos, quizzes and GIFs.
But there’s a downside too. The short video format on platforms such as TikTok is good to show you the basics, but it isn’t enough to delve into the detail of specific investments, especially spelling out the risks involved. And that’s where it’s important to take care.
The value of talking it over
Making financial decisions based on the hype, without properly thinking over the long-term ramifications, is a risk few can afford to take.
That’s where an adviser comes in.
Speaking to a person you can trust – someone who’s able to go into the necessary levels of detail – will stop you forging ahead and making some of the more common mistakes.
An adviser will make sure you’re investing in line with your appetite for risk; they’ll help you work out appropriate timelines to achieve your financial goals; and they will help you build a portfolio that’s diversified to protect your finances in changing market conditions to give you sustainable performance over the long term.
And the important thing to remember is this applies to everyone across the investing spectrum. Whether you’re well used to the world of financial markets, or just starting out on your investment journey, even when you feel like you have all the information you need. It’s still a good idea to talk things over with an independent professional – before you press ‘go’.
Don’t invest in what you don’t understand
Finfluencers make their money by getting eyeballs on their posts. They monetize views of their digital profiles chiefly from sponsored content.
Financial promotions are usually heavily regulated. If you’re pushing a particular investment product, you have to make it clear what risks are involved. For example, the value of your investment can go down as well as up, and you can’t judge future performance only by how something has fared in the past.
And it follows that the more complex an investment, such as hedge funds, or strategies that make use of financial instruments like derivatives, there’s a longer list of restrictions. In short bursts, it’s harder for a finfluencer’s post to get across the nuance and detail required.
While there have been some moves to regulate on social media – TikTok has banned promotion of some financial services products, notably cryptocurrency – it can still feel like the wild west, with posts that big up the benefits, with only a cursory glance at the downside.
In 2021, UK regulator the FCA warned that young investors could be leaving themselves open to too much risk. Among the worrying statistics, it found more than 40% of those surveyed didn’t view “losing some money” as one of the risks of investing. Four out of five said they made decisions based on “gut instinct.”[2]
The recent collapse of FTX, one of the world’s biggest cryptocurrency exchanges, is a reminder of why investing in this way can go very wrong. Only months before, its CEO Sam Bankman-Fried was hailed as an eccentric genius and his ad was airing to millions during the Super Bowl.
[1] DataReportal, July Global Statshot Report
[2] FT Adviser FCA warns young investors taking on too much risk
This article was prepared by AdvisorStream and is legally licensed for use by AdvisorStream.