The ‘big con’ around social media financial advice

Overwhelming majority of millennials and Gen Zers turn to the likes of Reddit and YouTube for guidance

The ‘big con’ around social media financial advice

Many Americans between the ages of 18 and 41 are using social media for something more serious than usual: guidance on credit card debt and other financial issues.

Seventy-nine percent of respondents in the millennial and Gen Z generations reported using social media to get financial advice, according to a poll commissioned by Forbes Adviser and carried out by market research firm Prolific. The survey also found that 76% of respondents think social media's financial content has made it less taboo to talk about money, while 62% feel more confident by having access to financial advice, and 50% have made money as a direct result.

However, personal financial experts are divided in their opinions on Gen Zers, millennials, or anybody else relying on social media – with Reddit and YouTube being the most trusted platforms --for financial advice. Jake Falcon, founder and CEO of Falcon Financial Advisers and certified retirement planning counsellor, is dubious about taking financial advice shared on social media sites.

“There are a few gurus out there that can speak to general advice, but the reality is that each individual is different and what applies to one person may not apply to another,” Falcon said. “A big con from getting advice on social media is that the person offering the advice may not be qualified to do so.”

But certified financial planner at online financial platform SoFi Brian Walsh doesn't think people should ignore any personal finance advice they see on social media. “Social media tends to get a bad reputation when it comes to personal finances, but that is extremely unfair,” he said. “Fortunately, good examples of sound financial advice on social media outweigh the bad. You just have to know where to look and how to distinguish between the two.”

The great majority of millennials and Gen Zers found financial advice on social media with about 7 out of 10 respondents (69%) saying they come across financial advice on social media at least once a week, and a quarter do so daily. Millennials prefer Reddit, while Gen Zers choose YouTube.

As a result, Walsh claimed that social media may glorify improper, careless methods for obtaining financial goals, especially when those offering financial advice may not be licensed to do so.

Just 31% of millennials and Gen Z respondents said they often verify the credentials of those who offer financial advice on social media.

Providing and absorbing financial information on social media sites, according to Walsh, essentially has no barriers. “But when it comes to something as important and complex as personal finances, it worries me because there is no one-size-fits-all approach,” he said.

Based on the poll, family (35%) and online searches (33%), rather than social media, are the main sources of financial advice for respondents. A relatively small (11%) percentage of people utilize financial advisors.

According to Walsh, the two social media platforms with the most trustworthy personal finance information are LinkedIn and Twitter.

Several financial topics are covered on social media platforms, including advice on stock and bond investing (the most popular topic, according to study respondents, at 57%), suggestions around debt reduction, and advice for retirement savings. Get-rich-quick scams (11%) and borrowing money (7%) were the two least discussed issues among individuals polled. However, 28% of respondents claimed to have lost money as a direct result of financial advice they received on social media, while 50% claimed to have gained money as a result.

Falcon advises using social media for broad financial knowledge only before receiving in-depth guidance from a licensed financial advisor. Furthermore, such generational advice does come with a warning, according to Cara Macksoud, managing director and CEO of the personal finance platform Money Habitudes and a certified financial behaviour specialist.

Despite the cautions of financial experts, 78% of those polled felt they have more access to financial advice now than they would have in earlier generations because of their identity, such as their ethnicity, gender, or income. Financial advisor Carl Holubowich, a principal at Armstrong Fleming & Moore, cautions that young people should be on the watch for social media-based financial scams even though social media has made financial advice more accessible to all.

Certified financial planner and private wealth advisor at LourdMurray, Rick Nott, said, “Be skeptical. Don’t take everything you read at face value,” Nott advises. “Instead, approach the material with an analytical eye, and ask yourself if this makes sense or if something doesn’t add up.”