Social media has become an integral part of our daily lives, and its influence extends far beyond social connections and entertainment. For young adults who are navigating the complex world of personal finance, social media platforms have emerged as powerful tools that can shape financial habits and decision-making. Let’s explore how social media can influence financial habits both positively and negatively, with a focus on the rise of “finfluencers” and the importance of discerning credible information.
The Rise of Financial Advice on Social Media
In recent years, social media platforms have transformed into hubs of financial information and advice. A survey commissioned by Forbes Advisor found that nearly eight in ten millennials and members of Gen Z have obtained financial advice from social media platforms like TikTok or Instagram. This trend highlights the growing importance of social media as a source of financial guidance for young adults.
The Appeal of Social Media Financial Content
Social media platforms have made personal finance topics more engaging and accessible, particularly for younger generations. The bite-sized, visually appealing content on platforms like TikTok—often shared under hashtags like #FinTok—has empowered more young people to take an interest in their financial futures. This accessibility has the potential to promote financial literacy and proactive money management among a demographic that might otherwise find traditional financial education boring or intimidating.
The Positive Influences of Social Media on Financial Habits
1. Enhanced Access to Financial Information
Social media platforms are teeming with financial advisors, investment gurus, and everyday individuals sharing insights about money management. This easy access to a wealth of information has empowered many users to make more informed decisions about their finances. Whether it’s tips on budgeting, insights into stocks, or advice on savings, social media has become a valuable resource for personal finance education.
2. Community and Support Networks
One of the most positive aspects of social media is its ability to foster communities and support networks. Groups dedicated to frugal living, debt management, and financial independence can offer moral support and practical tips, helping members navigate their financial journeys. These communities can act as a counterbalance to the pressures of consumerism often portrayed on social media and provide encouragement for those working towards financial goals.
3. Real-Time Financial Updates
The immediacy of information sharing on social media can be beneficial for staying updated on financial news and market trends. This real-time access to information can help young adults make timely decisions about their investments and financial strategies.
The Negative Influences of Social Media on Financial Habits
While social media can be a powerful tool for financial education, it also presents several challenges and potential pitfalls for young adults.
1. The Rise of “Finfluencers” and Unverified Advice
The term “finfluencer” has emerged to describe social media influencers who focus on financial content. While some finfluencers provide valuable insights, there are concerns about the credibility and qualifications of many self-proclaimed financial experts on social media.
The Financial Conduct Authority (FCA) has expressed growing concerns about the increasing influence of these finfluencers, with 74% of their followers reporting trust in the advice provided. However, unlike certified financial planners or registered investment advisers who must adhere to regulatory standards, finfluencers are often self-taught and lack formal financial education.
This lack of accountability and potential for conflicts of interest can lead to the promotion of high-risk investments or biased advice. For instance, finfluencers may be approached to promote products such as trading platforms, creating potential conflicts of interest that are not always clearly disclosed.
2. The Fear of Missing Out (FOMO) and Impulsive Financial Decisions
Social media can create and amplify the phenomenon known as FOMO or the fear of missing out. This can extend into financial behaviors, with users seeing peers purchasing luxury items, traveling to exotic destinations, or investing in trendy stocks. The desire to keep up can lead to spending beyond one’s means or making risky investments without proper consideration.
3. Overspending and Impulse Buying
The constant exposure to curated lifestyles and product promotions on social media can contribute to impulsive or compulsive spending. Young adults might find themselves buying items they don’t need or can’t afford simply because they saw their favorite influencer promoting them. This behavior can be particularly dangerous when combined with easy-to-use shopping features integrated into social media platforms, such as “Buy Now, Pay Later” options.
4. Unrealistic Expectations of Wealth and Success
Social media often presents a distorted view of financial success, with users showcasing only the highlights of their financial lives. This can lead to unrealistic expectations and negative feelings about one’s own financial situation, especially among younger users. The pressure to live up to these digitally curated ideals can distract from healthy financial habits like budgeting and saving.
Navigating the Social Media Financial Landscape
Given the potential benefits and pitfalls of financial advice on social media, it’s crucial for young adults to develop critical thinking skills and adopt strategies for discerning credible information.
1. Verify Credentials and Experience
One of the most important steps in evaluating financial advice on social media is to check the credentials and experience of the person providing it. Unfortunately, research shows that just 31% of Gen Z and millennials regularly check the qualifications of people supplying financial advice on social media. Always look for verified credentials such as Certified Financial Planner (CFP) or Chartered Financial Analyst (CFA) designations.
2. Seek Multiple Sources
Don’t rely on a single source for financial advice, even if they seem knowledgeable. Cross-reference information from multiple reputable sources, including established financial websites, academic publications, and regulated financial institutions.
3. Be Wary of Get-Rich-Quick Schemes
If financial advice on social media sounds too good to be true, it probably is. Be especially cautious of promises of quick wealth or guaranteed returns. Legitimate financial strategies typically involve careful planning and long-term commitment.
4. Understand the Motivation Behind the Advice
Consider whether the person providing financial advice on social media has any potential conflicts of interest. Are they promoting a specific product or service? Are they being compensated for their recommendations? Understanding these motivations can help you evaluate the objectivity of the advice.
5. Use Social Media as a Starting Point, Not the Final Word
While social media can be a great source of financial ideas and inspiration, it should not be your only resource for financial decision-making. Use the information you gather on social media as a starting point for further research and consider consulting with a qualified financial professional for personalized advice.
6. Follow Reputable Financial Sources
In addition to individual finfluencers, follow established financial institutions, regulatory bodies, and respected financial news outlets on social media. These sources are more likely to provide accurate and balanced financial information.
Conclusion
Social media has undeniably changed the landscape of financial education and advice, particularly for young adults. While it offers unprecedented access to financial information and communities, it also presents challenges in the form of unverified advice, potential conflicts of interest, and the risk of impulsive financial decisions.
By approaching social media financial content with a critical eye, verifying information, and using it as part of a broader financial education strategy, young adults can harness the positive aspects of social media while avoiding its pitfalls. Remember that building financial literacy and achieving financial independence is a journey that requires ongoing learning, critical thinking, and careful decision-making—both online and offline.
Ultimately, social media should be viewed as a tool in your financial toolkit, not the sole guide for your financial future. By combining the accessibility and engagement of social media with traditional financial wisdom and professional advice, young adults can navigate the path to financial literacy and independence with confidence.
Image by Freepik
