How Social Media Is Threatening Gen Z’s Finances

While Gen Z might be known to others as tech-savvy, the younger group faces a significant threat to their finances online.

In fact, Gen Z is one of the most at risk for falling for incorrect or misleading financial advice online, according to a new report from the CFA Institute. This is because of the rise of the “finance influencer” or “finfluencer.”

The report found only 20 percent of all finance influencer content on TikTok, Instagram and YouTube included disclosures, like the influencer’s professional status or if they were compensated for recommending certain products. When Gen Z doesn’t see these disclosures, they can often act on inaccurate investment advice.

“This finding is concerning given that Gen Z investors expressed that they rely on disclosures to identify marketing and that in the absence of adequate disclosures, the content may violate advertising laws,” the report said.

Gen Z also reported they turned to “finfluencers” more than financial advisors due to various reasons. For one, they haven’t received any formal financial education and have limited interactions or opportunities to interact with actual professionals. They also might prefer the digital setup and how it allows them to access personal finance information for free and immediately.

But of course, that strategy exposes them to bad advice or downright fraud.

“Fraudsters are exploiting these factors to better find and exploit victims via social media platforms like Snapchat and TikTok as well as dating, gaming and money movement apps,” James Ruotolo, the senior director of financial services at SAS, told Newsweek. “Younger generations’ ‘click first’ attitude makes them particularly vulnerable.”

In reality, Gen Z might be more at risk of getting bad financial advice (or scammed) online, but that’s also true for everyone who interacts more on a social media platform, Alex Beene, a financial literacy instructor for the state of Tennessee, said.

“There’s nothing worse as a teacher than hearing a young student who heard of some ‘hot upstart company stock’ on TikTok or Instagram, only to lose a few hundred dollars when the price dropped 80 percent after poor quarterly results,” Beene told Newsweek. “However, even among adult students, I hear bad advice about how they heard not to pay off their home early or to stop putting money into their 401K from some ‘expert’ they found on YouTube.”

Paul Walker, a finance expert who wrote A Money Book Anyone Can Read, said many “pump and dump” scams exist where influencers buy stock and then claim the price will take off, such as what happened with GameStop, which soared in value after a Redditor almost singlehandedly led an investing frenzy.

“Because of their influence, it does,” Walker told Newsweek. “The influencer sells and the stock crashes.”

Choosing to focus on one stock differs from traditional investing wisdom, which has always preferred a diversified investment selection.

“The bigger problem is that most people should never buy an individual stock,” Walker said. “The basic principles behind sound investing are diversity and risk so instead of buying one stock buy an index fund.”

Even so-called “hot stocks” lose their value over time, Walker added.

Beene said creating a strong financial future for most Americans means saving, investing and paying off debt.

But when a “finfluencer” offers a shortcut, it’s easy to be led astray.

“The problem is those things are hard to do and the allure of outside-the-norm thinking draws people into making bad decisions,” Beene said.