ANDYou can order an outfit that an influencer wears in their Christmas photos or buy the beauty product they constantly praise. You could even borrow decorating inspiration from their home or take a screenshot of them to show your hairstylist. But would you follow an influencer for their financial advice and put it into practice?
For Generation Z, the answer appears to be a resounding “yes.” For them, financial influencers (or “finfluencers”) are quickly replacing more traditional sources of monetary guidance. In 2022, a study found that 62 percent of 18- to 29-year-olds in the UK follow finfluencers on social media, and 74 percent trust the advice they provide; As a result, 90 percent of these young people had changed their financial behavior. Many of these social media accounts “explain complex concepts in an easy-to-understand way that can help boost financial literacy,” says Rhodri Preece, senior head of research at the CFA Institute, a professional body for people working in investments. So what don't you like?
The problem is that not all finfluencers are the same. While some provide simple advice on budgeting or extol the virtues of a good pension plan (all through conversational, easily digestible videos and infographics), others are pushing dubious get-rich-quick schemes to their followers, or singing the praises of risky cryptocurrencies. Some are simply not qualified to give advice on financial products. You probably already know the hallmarks of their posts: the ones explaining how “one simple trick” helped them suddenly become millionaires, or how their passive income allowed them to quit their nine-to-five job to travel the world (and now They want you to do the same!)
Last year, a survey by the Financial Conduct Authority (FCA) found that 58 per cent of people aged 18 to 40 had been encouraged to make high-risk investments as a result of advertising on social media. But why are these more dubious finfluencers so attractive? Because they are selling a better life and their followers want to participate in that.
“Influence works the same whether it's financial advice or makeup: you want a sense of belonging,” says Dr Ylva Baeckstrom, senior lecturer in finance at King's Business School and practicing psychotherapist. “You think, 'This guy is making a lot from cryptocurrencies.' If he can do it, I can do it… If I could just make a few dollars doing this, then I'd be as happy as him.'”
When you go to school, there is a lack of general education about real-world finances.
Karishma Galaiya, Cardo Initiatives
Of course, he adds, a finfluencer's profile may well simply be a curated highlight reel. “With financial investing, we tend to brag about our wins and keep quiet about our losses,” she says. “You won't necessarily have an influencer saying 'Oh my god, I lost £300 today'.” That would be the equivalent of, say, posting a photo without a filter after sleeping for three hours. “[They’re] I'm just going to talk about [their] hits, because that's what people want to hear. “That’s how you get followers.”
When it comes to managing money, many young adults also lack practical knowledge. “There is a gap for young people,” says Karishma Galaiya, senior investment manager at financial services compliance consultancy Thistle Initiatives. “When you go to school, there is a lack of general education about real-world finances. Even if you study A-level economics, everything is theoretical [so] In your daily life, how do you implement good financial decisions?
In this context, it is not surprising that people are turning to social media to fill this “void.” Plus, platforms like TikTok and Instagram are well within Gen Z's comfort zone (whereas, say, calling your bank manager to make an appointment is, let's face it, the kind of task that gets put off infinitely). And they are also free to access. “At least in the UK, you have to pay to see a financial adviser,” says Preece. “Does that make sense if you have a relatively small sum to invest? Do you perceive that there is value in that relationship? Or are you more comfortable, as a young investor, turning to your phone and checking out information for free?
When Preece co-authored a recent report exploring the rise of finfluencers, about half of the positions he studied provided broader financial guidance: They were “more of a general educational nature,” rather than pushing “a particular course of action to buy”. or sell something.” “I think it's a generally positive finding: that these content creators are trying to educate and inform their audience,” he says. However, looking at the remaining posts, “we saw a number of issues related to lack of disclosure: It wasn't always easy for the person viewing this content to understand if there was any conflict of interest…if the influencer was receiving compensation for making those recommendations, whether advertising.”
Of the financial promotions he looked at, half didn't bother to make it clear that they were actually ads. This lack of transparency is a growing problem. Last year, the FCA asked firms to edit or remove 10,000 finance-related promotions, a 17 per cent increase on the previous year.
The situation gets even murkier when celebrities and reality TV stars with huge platforms (and no obvious track record of financial savvy beyond, well, being rich) try to get into the financial influence game. In 2021, Kim Kardashian posted an Instagram story promoting the EthereumMax cryptocurrency token, which rose in value rapidly that year and then plummeted in 2022. She eventually settled charges that she failed to disclose a $250,000 payment for advertising the coin, paying a fine of 1.26 million dollars. (£1 million) to the United States Securities and Exchange Commission.
In some cases, influencers don't necessarily know the laws or what is required of them.
Rhodri Preece, CFA Institute
In the UK, promoting financial products on your social media platform is more complex than, say, uploading an ad for a teeth whitening powder and placing the obligatory “#ad” in the post title. If you share your praise for a disappointing moisturizer, you might have some angry fans in your comments section. But the consequences are much greater when real money is involved. “Influencers need to understand that there are very strict regulations in this area,” says Galaiya. But the reality is that “in some cases influencers don't necessarily know the laws or what is required of them,” adds Preece. Furthermore, she notes, social media platforms “make it clear that the onus is on the individual posting” – and not the platform – “to know what is required of them.”
All promotions must be approved by someone authorized by the FCA; if this does not happen, then the influencer in question could be committing a criminal offense. Earlier this month, the FCA announced that it had charged the reality stars with Love Island, Geordie Coast and The only way is Essex in relation to the promotion of an unauthorized exchange scheme. They each face one count of issuing unauthorized communications of financial promotions and will appear in court in June.
This marked the first prosecution brought by the FCA against influencers for alleged financial promotion breaches. It's all part of a broader campaign against finfluencers by the regulator. This year, it also published clarified guidance, emphasizing that risk warnings should be clearly displayed on all video promotions on social media (pasting them in the title or mentioning them in the dialogue would not be enough) or on every image posted as part of an Instagram account. carousel. Basically, they need to make sure they provide “clear, fair and non-misleading information,” Galaiya says.
It can be “very easy to get sucked in” by the promise of almost instant riches, adds Galaiya. But, she says, it's important to “take a step back” and ask yourself some questions. “Who is the influencer? Can you check his credentials?” If he claims to be a financial advisor, he must appear on the Financial Services register. And while some finfluencers may have really helpful suggestions, watching some TikTok videos is no substitute for doing your own research. “Don't put all your trust in that one piece of information,” Preece says. “Check it with other sources and use it as input into the mosaic to form a vision when it comes time to make a decision.”
