If you are going to get financial advice from social media, make sure it's from a reputable source. Photo / 123rf
If you are going to get financial advice from social media, make sure it's from a reputable source. Photo / 123rf
Opinion by Diana Clement
Diana Clement is a freelance journalist who has written a column for the Herald since 2004. Before that, she was personal finance editor for the Sunday Business (now The Business) newspaper in London.
The TikTok generation turns to social media for personal finance advice. A survey last year by digital KiwiSaver adviser BetterSaver found 27 per cent of 16- to 24-year-olds turned to social media for money advice.
That’s not all bad, because plenty of social media channels offer sound pointers to peopleof all generations. The issue is that sandwiched between the good is some truly jaw-dropping advice. I keep a file of some of the truly awful social media advice. Whenever I review it leaves me speechless, yet again.
TikTok, Instagram, Facebook, Twitter, Reddit, Mastodon or other social media platforms all have channels with useful commentary. Whether it’s 20-somethings like GirlsThatInvest; the once young gun Scott Pape of Barefoot Investor fame, who is now in his early 40s; or Dave Ramsey, who’s 62, the messages are roughly the same, just delivered in a different style. They’re not revolutionary, but these authors’ TikToks, podcasts, and books can help people create good personal finance habits. For the record, so too can those of my colleagues Mary Holm and Frances Cook.
Where social media users need to be especially careful is in comment threads where randoms spout rubbish. Some of these comments send shivers down my spine with “advice” such as putting your entire nest egg in cryptocurrency. On a thread entitled: “WWYD with proceeds of a house sale while you wait for the market to stabilise?” The poster asked: “She’s going to live with us while she looks for another property but anxious what to do with the money ($1.5 million) in the meantime.” Bitcoin or Dogecoin was the answer from two commenters. A year ago I saw similar responses to virtually the same question. The homeowner would have halved the capital had he put the house proceeds in cryptocurrency at that time. I still see people recommending that people move their KiwiSaver money from a growth to a conservative fund because the market is down, which couldn’t be worse advice.
Another poster asked for advice about how to be more money savvy, and a commenter recommended repeatedly with no hint of irony that she start buying stuff on buy now pay later.
One variety of these commenters are know-it-all narcissists, convinced that they’re smarter than everyone. Then there’s a cognitive bias called the Dunning-Kruger effect, where a person’s lack of knowledge and skills in a certain area cause them to overestimate their own competence. We all know some of those people, and their advice on what to do with money is often atrocious.
Beware of friends and family. What does your cousin really know about KiwiSaver, property investing or life insurance? Most likely it’s the blind leading the blind. Recommendations from lay people often have a big dollop of confirmation bias on top. In behavioural finance theory, confirmation bias is the tendency to positively favour information that fits the narrative they want to hear. It goes: “I’ve made this decision and want to justify it.”
Can you trust your sources? Photo / AP
Self-interest is very common on social media. Anyone selling a financial product, be it property or investments, has a vested interest. Sometimes they’re selling seminars, “mentoring” or property finding. Or they sell new property to investors packaged up with a “financial plan”, which of course recommends they buy property sold by that company. Best to go to a truly independent financial adviser not linked to sales of any sort.
Influencers are a subset of the self-interest crowd. They may be promoting real-world products, rather than investments, but if they’re making their money from directly promoting products, it’s human nature to skew the advice towards their backers. I was pleased to see that the highly influential GirlsThatInvest, podcasters who have 280,000 followers on Instagram and TikTok combined, announced in November that they weren’t doing any more “collabs” (aka product promotion) between now and Christmas thanks to people’s budgets being under pressure.
One-cycle wonders pop up on social media. I’ve watched investing cycles come and go since the mid 1980s. In each of the booms I saw gurus selling get-rich-quick dreams. Most had just made a killing on the up market, but had never been spat out the other side of a downturn.
Scammers and phishers often also use social media to pull in unsuspecting victims. They post as people offering anything from helpful advice to the “secrets” of how to get rich quick. It can’t be repeated often enough that any financial claim that seems too good to be true is just that. A rip-off at best, and a scam at worst.
