The rise of finfluencers: Navigating financial advice in the digital age
|Published
In today's world, social media plays a huge role in shaping how young people learn about money. Platforms are filled with finfluencers - financial influencers who share advice and insights on investing and managing money.
However, following these online personalities can be a double-edged sword.
A global report from 2024, "Investing in the Age of Social Media," revealed that nearly 40% of Gen Z in the US and UK base their investment decisions on advice from finfluencers.
This trend highlights the need for caution and thoughtful guidance to avoid decisions influenced by biases or limited expertise.
Lee Hancox, Head of Channel and Segment Marketing at Sanlam, emphasizes the need for a careful approach.
She points out that "36% of finfluencer advice includes investment promotions, and 80% of recommendations don’t disclose the finfluencer’s professional status or any commissions they might receive".
Hancox advises that young adults and parents should critically assess the credibility of finfluencers.
She says, “Parents and young adults need to look beyond the number of followers and examine finfluencers’ qualifications and backgrounds. Having lots of followers doesn't necessarily mean they're giving you the right advice."
Here are some key red flags to watch for:
Get-rich-quick schemes: "If it sounds too good to be true, it usually is. Be skeptical of any finfluencer promoting strategies that promise unusually high returns in a short period.
“Legitimate investing typically requires time and patience. If someone offers a way to ‘get rich quick’ with little effort or risk, it's likely a scam or high-risk venture.”
Promises of secret investment strategies: Young adults must question the motives behind a finfluencer’ sharing so-called secrets.
“Be cautious of finfluencers claiming they have exclusive knowledge or ‘insider secrets’ that will guarantee financial success. Sound financial principles are well-known and freely available, and valuable investment strategies don't need to be shrouded in secrecy."
Lack of proper qualifications or relevant experience: Check the finfluencer’s credentials. Many popular finfluencers may not have formal financial education or professional experience in the finance sector.
While this doesn't automatically invalidate their advice, it's important to consider the source of their knowledge. Be particularly cautious of those giving complex financial advice without proper credentials or a track record in the financial industry.
Helping young investors make smart decisions: While the rise of finfluencers offers new learning opportunities, it also requires discernment.
Parents can play a key role in guiding their children through the digital financial landscape by encouraging them to critically evaluate the advice they encounter online.
"It could be quite a costly mistake if you put money into some sort of scheme or invest your child's money in something that someone on a TikTok video has mentioned, and you haven't done the due diligence in the background."
Balancing digital and traditional financial education: While digital tools can help teach children about finances, parents shouldn't rely on them entirely, says Lee Hancox.
"It shouldn't just be a 'here's a phone, figure it out' type of thing. Parents should look for teachable moments in everyday life," she advises.
For younger children, Hancox suggests setting up a pretend store at home or playing board games like Monopoly. For older kids, it might mean involving them in family financial discussions or helping them set up their first budget.
"We need to get better at talking to our kids about finances from a young age. This openness can help children develop a healthier relationship with money and better understand its value".
She adds, "You'll always need that human element from a financial adviser's empathy, understanding, and personalised guidance that algorithms cannot mimic.”
This is especially important as young people face more complex financial decisions as they transition into adulthood. A financial adviser can help them navigate these challenges while considering their unique circumstances and goals.
The goal, according to Hancox, is to help children develop good money habits that will serve them well into adulthood.
She suggests several strategies to achieve this:
Start early: Introduce financial concepts when children understand basic math.
Be consistent: Regularly reinforce good money habits.
Lead by example: Demonstrate good financial behavior in your own life.
Encourage saving: Help children set savings goals and help them work towards them.
Teach delayed gratification: Help children understand that some purchases require planning and saving.
Discuss money openly: Create an environment where money conversations aren't taboo.
"While finfluencers and digital tools can provide valuable insights and engaging ways to learn about money, they should complement, not replace, traditional financial education and professional advice.
“By combining digital and traditional approaches to financial education, we can help the next generation build a solid foundation for financial success and live with confidence.”