Gen Z turns to TikTok, Instagram for personal finance advice despite misleading investment tips

Young Americans – including Generation Z and millennials – have turned to social media platforms like TikTok, Instagram, Facebook and Twitter for investing advice to get trade ideas and swap tips in a virtual trading floor.But their newfound power on their smartphones comes with risks.Financial regulators worry that this year’s viral trading craze of meme stocks and cryptocurrencies have fueled unrealistic expectations for first-time investors, who face the possibility of losing money due to the spread of misinformation and fraudsters, according to brokerage watchdog Financial Industry Regulatory Authority.“Investing is fundamentally complex. You can’t boil it down in a single tweet. You can’t distill it to just a few words or images,” says Gerri Walsh, president of the FINRA Foundation.“There is a great deal of information that is good on social media platforms, but there is also a great deal of information that is bad, whether it’s people who don’t know what they’re talking about, or malicious intent, which is frightening for regulators,” Walsh added.Gen Z turns to TikTok, Instagram for financial advice and takes itTo be sure, social media and the internet have become important tools for investors to research stocks and find guidance on investing strategies.Young investors also can more easily access the stock market and other investments than previous generations with the rise of online trading platforms like Robinhood, which have helped shape their investment behaviors.Young Americans, who have been hit by the second recession in their lifetimes and prime earning years, are flush with stimulus money and savings in the pandemic. There’s a fear of missing out (FOMO) to cash in big on everything from GameStop to cryptocurrencies.Meme stocks like GameStop and AMC are companies whose share price don’t match their underlying business fundamentals like profitability from producing and selling goods and services.Earlier this year, small-time investors on Reddit took on a few hedge funds in the GameStop “short squeeze” frenzy. That spurred millions of others to join in, as their effort to drive up the price of a stock perceived as undervalued soon shifted to a campaign to “Stick it to Wall Street.”  They used the “squeeze” to rally the share price and make profits for themselves while forcing the hedge funds who had bet it would fall to buy it to prevent greater losses.Investor knowledge in the U.S., however, is low among all investors and many are confused about the various fees they pay for investing, according to FINRA. Few young and new investors rely on financial professionals for their investing decisions, according to a 2020 study from the FINRA Investor Education Foundation and the NORC research organization at the University of Chicago. White investors (44%) were much more likely to use a financial professional than either Black (28%) or Latino (23%) investors.Those under 30 were nearly three times more likely to use social media as a source of information for their investing decisions and new investors were twice as likely than more experienced investors, according to the study. Using social media for investing decisions was much more popular for Black investors (21%) than for white (8%) or Latino (4%) investors.  Young investors have sought help from social media to assist with their meme-inspired investing ideas and for personal finance advice on everything from budgeting, taxes, credit card debt and home buying.In fact, about 56% of Gen Zers (born between 1997 and 2012) and millennials (born between 1981 and the mid-1990s) say they intentionally seek out information or advice about personal finance online or through social media.The majority of Gen Z seek this information on Instagram (57%) and TikTok (52%), according to a recent study conducted by Qualtrics on behalf of Credit Karma.Millennials mainly seek out this kind of information and advice on Facebook (53%) and Instagram (39%), the study found. Although technology and social media can be a powerful tool for young Americans who have taken steps to inform themselves on their finances, it’s important for consumers to do their research and verify the information they find online before taking action,  according to Colleen McCreary, chief people officer at Credit Karma. She said this is especially true when it comes to more risky advice like investing in the stock market or cryptocurrencies. “Most of the time, you don’t know who these people are and they don’t know you. You may be taking advice that doesn’t necessarily apply to your financial situation,” says McCreary. “I’d strongly encourage people to use this as an entry point to get more clarity on their personal finances and then decide to talk to an expert.”Stock Market: What makes a stock’s price move? What you need to know.The stock market is volatile and unpredictable. Here’s why stock prices move and how to navigate it as an investor.For My Money, USA TODAYYoung generations most confused about investing and filing taxesLofty values and the wealth generated in the pandemic have drawn young Americans to investing, even though they have been hit by two “once-in-a-lifetime” recessions early in their prime earning years and may feel that they have not saved enough for their nest eggs.Therefore, the ability to become rich quick seems close at hand. But the drive to get in on the action comes with big risks: low levels of financial knowledge leave most Americans at risk of losing more money than they can spare when markets turn volatile or crash.“In many situations, you hear people boast about how much money they’ve made trading, but you never hear about people who lost money. People tend not to brag as much about things that don’t go in their favor,” says McCreary. “There are a lot of stories recently where I don’t know how much of it is skill versus luck.”Younger generations are most confused about investing (24%), filing their taxes (21%) and credit score factors (18%), according to the study. And, that study shows when it comes to the parts of their financial lives that feel too daunting to even address, Gen Z and millennials list 401(k) vs Roth IRA options (27%), stock market investments (25%) and crypto currency and digital assets investments as the most daunting.Gen Z has received home buying advice (26%) and advice on opening a credit card or bank account (22%), while millennials have received advice on how to invest in the stock market (29%) and advice on credit card rewards and points (28%), the study showed.And 22% of millennials also have received advice on investing in bitcoin/cryptocurrencies, which are essentially digital coins created and exchanged over a decentralized computer network where transactions are secured and verified through coding.Among cryptocurrency owners, the top sources of information are Facebook (46%), Twitter (41%), friends and family (37%), Reddit, and Instagram (35%), according to a  Harris Poll, whose data of more than 2,000 adults was given exclusively to USA TODAY.That poll found Reddit (68%) was regarded as the most credible social media platform, followed by Twitter (63%), Facebook (62%) and Instagram (59%).Bitcoin, the world’s most popular digital coin, has been highly volatile.In late 2017, the digital token rose to nearly $20,000 before crashing to almost $3,000 the following year. It had a dizzying rise earlier this year when it doubled in value to above $64,000, but then it briefly tumbled below $30,000 this summer as regulators continued calls for tighter controls on cryptocurrencies.The stock market, meanwhile, has surged more than 100% since March 2020, when the COVID-19 pandemic dealt a huge blow to the economy. “The stock market has been on a tear, but how long will the good times last? You have to ask yourself whether you are preparing yourself for shocks or risks if things don’t sustain over the long term,” McCreary added.Mutual funds, index funds and ETFs: How to use these to build wealthBuying an ETF or mutual fund is a cheaper, less risky way for new investors to enter the stock market. Here are the pros and cons of each, explained.For My Money, USA TODAYMore than a third of Gen Z, millennials say they would take financial advice at face value without fact checkingWhile social media can provide many benefits for investors, it also presents opportunities for fraudsters.Earlier this year, FINRA and the Securities and Exchange Commission issued warnings about the risks that come with social-media-influenced investing.Through social media, fraudsters can spread false or misleading information about a stock to large numbers of people with minimum effort and at a relatively low cost, according to the SEC.They also can conceal their true identities by acting anonymously or even impersonating credible sources of market information.Some social media influencers are using their platforms to artificially inflate or depress the prices of stocks, according to Mark Gorzycki, an investor behavior expert and co-founder of OVTLYR, a behavioral analytics tool for retail investors.“The most clear cut, surefire way to protect yourself from a malicious actor is to understand their motivation,” says Gorzycki “Why are they giving you information to follow? If the answer is because they want to have a big following on their YouTube channel, that’s wrong.”Roughly 75% of Gen Z and millennial respondents who intentionally seek financial advice online or through social media say they follow specific social media influencers who create content relating to personal finance, the study showed.And 45% of those who have sought out this information say they actually have taken financial advice from someone they didn’t know online and 69% of those who took advice said the advice they received made a positive impact on their lives.In a troubling sign, many young Americans aren’t fact-checking disinformation on social media, according to Credit Karma.Among all Gen Z and millennial respondents in the Credit Karma report, including those who have and haven’t taken advice from someone they didn’t know online, 37% say they would take such financial advice at face value without feeling the need to fact check the information. Additionally, the report found nearly half of all respondents said they’re likely to share financial advice or information found online with a friend or family member. Of those who have taken advice from someone they didn’t know online and intentionally sought advice, 25% received tips on investing in the stock market and 19% got advice on investing in bitcoin/cryptocurrencies, according to Credit Karma. Personal finance influencers see the pros & cons of TikTokDeacon Hayes, a 38-year-old personal finance TikToker, is an influencer who takes a measured approach with investment advice when it comes to meme stocks and cryptocurrencies. Hayes, who has more than 15,000 followers on TikTok, previously worked as a financial planner at Ronald Blue and Company, an investment management firm that assists high net worth individuals.He and his wife, Kim, who reside in Scottsdale, Arizona, paid off $52,000 in consumer debt in an 18-month span in 2009 and 2010 following the aftermath of the global financial crisis. The payoffs included car and student loans to credit card debt. After that experience, he decided that he wanted to work with average Americans to help give them personal finance and investment advice.Hayes founded Well Kept Wallet, a personal finance site aimed at helping visitors save and grow their money with financial tips. He’s found that TikTok is a popular way to share his advice, which he’s noticed has helped boost interest in investing, saving and retirement topics among young adults. However, he’s also noticed that at times he has seen incomplete information on risky investments on the platform for things like meme stocks.In July, TikTok barred the promotion of financial services including cryptocurrencies, unless users disclose it through a branded content option in the app.Hayes had a mixed reaction to the decision, but still thought it was needed, he says. “TikTok as a platform has a responsibility to make sure people have accurate information,” says Hayes. “It’s important that people aren’t being taken advantage of. You do have to have checks and balances on those platforms.”Hayes, who says he doesn’t sell products on the platform, added: “What’s in it for them? Are they trying to sell you a product, or a course to ‘get rich’?” Red flags to watch on social mediaInvestment fraud criminals use a wide array of sophisticated and highly effective tactics to target and influence prospective victims. Learning to recognize specific tactics can help Americans avoid being a victim, says Walsh of the FINRA Foundation.To avoid becoming drawn into a scam, look for the warning signs of investment fraud. Be suspicious of anyone who guarantees that an investment will perform a certain way because all investments carry some degree of risk, financial experts say. Many investment scams involve unlicensed individuals selling unregistered securities —ranging from stocks, bonds, notes, hedge funds, oil or gas deals, or fictitious instruments, such as prime bank investments, according to FINRA. Any investment that consistently goes up month after month — or that provides remarkably steady returns regardless of market conditions — should raise suspicions, especially during turbulent times, Walsh says.“When you’re dealing with somebody who is giving investment advice but isn’t licensed, all of the investor protections that surround a registered professional, whether they’re a broker or advisor, don’t exist,” says Walsh.►Take our financial literacy quiz: How high can you score?So be sure to deal with licensed professionals.“Even when it comes to a well-intended person who is giving advice, if it ends up turning sour for you, none of those investor protections that a regulated person would be subject to would apply to that person,” Walsh added.To be a professional trader, for instance, requires exams and a FINRA license to execute orders for a Wall Street securities or brokerage firm. An average person, however, isn’t required to do that if they’re day trading for themselves.“The perfect storm is brewing. Young retail traders have seen success with things like meme stocks,” says Gorzycki. “They’ve had some early wins. But when you mix early success with inexperience, you get over confidence real fast. You can’t go into the market thinking you’re bulletproof. Be sure to get education on how markets function.”GRAPHICS George Petras/USA TODAY“Young Investors: Risk and Reward” is a series that examines the aspirations and anxieties of young Americans as they invest money in the current market boom, which is lifting traditional stock prices to record highs and elevating a new, risky marketplace for virtual goods, from digital art to Dogecoin.Have a tip on personal finance or market stories? Reach the reporter at jmenton@usatoday.com or on Twitter @JessicaMenton.


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