Social media has transformed from a place to share a snap of your dog, to a platform to learn about everything from fashion and beauty to finance and investing. The latter forms part of a relatively new wave of social media landscape, where followers flock to those with information and knowledge to share rather than just those that look the most glamorous. But when it comes to learning about finance and investing from social media influencers, is this advice we can trust? Today we’re breaking down the need-to-knows about personal finance content on social media, and how to ensure you’re not taking bad advice online.
While there’s no official criteria that qualifies someone as a social media influencer, broadly speaking, these are online profiles that amass any level of following to the extent that their followers are ‘influenced’ by the things they say. Where a fashion influencer might influence their audience to buy a pair of jeans they recommend, a finance influencer might influence their audience to open a bank account, or invest in a type of stock.
Without a doubt, the rise of personal finance content on social media has seen more and more people engaging with their finances — and broadly, that’s a great thing. In a generation with a distinct shortfall in financial literacy, it’s wonderful that our social feeds have been filled with budgeting and savings tips in between snippets of celeb gossip. But when do ‘tips’ become advice?
Giving financial advice without a license is illegal in many countries. March 2022 saw Australian finance creators come under fire from the industry regulator Australian Securities and Investments Commission (ASIC), and the distinction of what qualifies as financial advice was re-clarified in the context of social media. Every country handles its financial advice laws differently, but it serves as an important warning to anyone producing or consuming finance content.
Much of the controversy about finance influencers surrounds financial products — most specifically stocks and cryptocurrency. While cryptocurrency isn’t yet regulated as a financial product, its place in the online investing conversation is an important one.
A major red flag from finance influencers is any promise of certainty, particularly around investment returns or how much money you can make. All investing carries risk, and nobody can actually promise you how much you can earn in returns. A finance influencer encouraging their followers to invest in a specific stock, fund, cryptocurrency or NFT is an important red flag.
In many cases, finance influencers share their knowledge online perfectly innocently. But there are some sinister exceptions. Social media influencers have the power to influence behavior, and this has led to what’s known as ‘pumping and dumping’. Influential identities online share a ‘stock tip’ and encourage their followers to go and buy that stock. This can inflate the value of a stock fairly quickly. In ‘pump and dump’ schemes, influencers will then go and sell their stock at the high price following the flood of demand they generated.
Regardless of whether an influencer is sharing stock tips, mortgage education or budgeting hacks, it’s always worth supporting your learnings with your own research outside of social media. Even information that is presented as ‘factual and balanced’ (which is the recommendation from many regulators), errors and misrepresentations can be made. Even though these may be innocent mistakes, it can still leave you with false information that could impact you down the track. Here are some other ways to protect yourself:
Emma Edwards is a finance copywriter and blogger, on a mission to humanize the financial services industry by creating meaningful content that’s accessible and empowering. You’ll find her penning money tips at her blog, The Broke Generation, sharing financial insights on Instagram, or injecting life into content for her business clients.