Financial advice is a complex topic and often requires a professional planner to get it right. The very idea of seeking it can seem daunting, with many people unsure of where to start or who to go to.
A recent trend has seen an increase in the viewership and production of content on social media that gives various forms of financial advice.
CNBC report that nearly half of teenagers are learning about investing from some form of social media. The trend, which is especially prevalent on TikTok and Instagram, is thought to have been partly linked to the GameStop saga in January 2021.
Since the events in January, the subreddit responsible (r/WallStreetBets) now has a userbase of more than 10 million, more than double what it was at the start of 2021. Investment News report that TikTok videos tagged with “#personalfinance” have accumulated a total of 3.5 billion views.
But with TikTok themselves banning the promotion of various financial services on their platform, and warning users over taking any financial advice on social media, is taking such advice really such a good idea?
Social media financial advice does have some positives
The very nature of social media is that it is public domain and, thus, freely accessible. This also means that any available information on social media is typically broken down and easy to understand.
For a younger audience, this is especially important, as the world of finance is complex at the best of times. Social media allows for small, easily digestible chunks of information to be delivered in a snappy video format, which is usually more memorable than learning it from a book or newspaper.
It fills a void that is typically left empty throughout the education system. According to the Young Persons’ Money Index 2021-21 from the London Institute of Banking & Finances, just 8% of young people said they learned the most about money skills in school, as opposed to learning from their parents or their own experiences. 83% of students said that they wanted to learn more about money in school.
These informative videos can then act as building blocks from which a substantial amount of knowledge can be added with further research. In developing this knowledge of finance, it may spark an interest or make someone consciously aware of how important financial decisions are.
At the very least, even if the advice or information isn’t entirely accurate, it spreads awareness of the importance of your financial wellbeing. It may prompt an individual to review and understand their own financial situation or seek out professional financial advice.
You should always be careful when following advice from social media
Financial or otherwise, social media advice isn’t known for its reliability. First and foremost, the easy-to-understand nature of information provided tends to mean that a topic’s complexities have been removed.
This could prompt you to make a financial decision or investment without the necessary knowledge to do so. Not only is it important to know the intricacies of every decision when your finances are involved, but it’s also vital to understand how it will affect your personal situation.
No two people are in the same situation with their finances, so it’s important to distinguish when a piece of advice may not be relevant or beneficial for you. General advice, when not tailored to your needs, may end up hurting your finances.
Also, it is impossible to verify the credentials of an individual on social media. There is no way to prove that the person you are watching is actually qualified, or even knowledgeable on the subject that they give advice on.
Compounding this is that social media is often riddled with sponsorships and product placements. It won’t take long to find a TikTok that recommends a certain investment platform or service thanks to a paid promotion.
In this case, the content creators giving these endorsements may not even believe in their own advice. This may make it difficult to determine what services are genuinely recommended and worthwhile, and which have simply paid to be promoted.
Lastly, and perhaps most importantly, social media is an international medium for communication. Why is this important? Because every country has completely different rules, laws, and regulations when it comes to finance.
Each country operates with vastly different levels of Income Tax and Corporation Tax. They may use different methods of financial regulation or have different options for financial protection. Advice that may be relevant to an American audience may be incorrect and even harmful for UK and other international viewers. Tax allowances, restrictions, and payments will vary hugely.
As a simple example, a basic-rate taxpayer in the UK will pay 20% tax. In the US, the federal tax rate is 10%, with the other various factors possibly increasing this number. Taking the advice of an “adviser” who is based outside of the UK could be dangerous, since their country and yours may operate differently.
Social media is great for raising awareness…
… but maybe not too much else. At the very least, if you plan on taking the advice of a social media influencer, be sure that you are aware of all the possible associated risks. Be sure to consider any legal differences if they are based internationally and do your research to make sure they are qualified, and that their advice is correct.
It’s undeniable that social media has raised the awareness of the importance of personal finance among the younger generation. Awareness, however, does little if you don’t understand the complexities around finance.
If you are seeking financial advice but you are unsure where to start, consider speaking to a financial planner before heading to social media. Not only can they provide professional, relevant advice for your personal situation, but they can also advise you of any risks involved with the process. If you’d like to discuss your finances or have any questions, please contact us.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.