Nearly Two-Thirds of Young Investors Take Advice From Finfluencers

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Young investors are glued to their phones, but the extent to which social media shapes their financial decisions is striking. Among investors under 35, 61% have made decisions based on finfluencer recommendations, according to a new FINRA report. Across all age groups, nearly a third of investors use social media as an information source. Turning to the internet for guidance isn’t always a bad thing, but many of these same investors are far too confident in their financial knowledge. Half couldn’t identify clear signs of fraud, such as a product promising a “guaranteed, risk-free 25% annual return,” the report found. Even those with professional financial planners can be at risk, and advisors need to remind clients of the pitfalls of believing everything they hear on the internet.

“That myth of ‘fraud only happens with the little lady living alone on limited means’ just isn’t true,” FINRA President Gerrie Walsh said during a press conference last week. She added that younger investors are frequently targeted precisely because they’re digital natives.

A Bad Finfluence

Social platforms can generate enthusiasm for riskier products. While most investors don’t dabble in meme stocks, about 30% of those ages 18 to 34 have bought a meme stock or similar investment simply because it was trending, according to FINRA.

The report also found:

• YouTube, Reddit and Instagram are among the top places investors go for information. 
• Newer investors and people of color, particularly Black and Latino investors, are more likely to seek recommendations from finfluencers.

Follow Me. There are clear reasons people turn to social media for financial guidance. The content is free, accessible and abundant. Plus, events like the 2008 financial crisis and the long-term underperformance of active funds have also fueled distrust of traditional financial institutions, said Richard Coffin, investment analyst and host of the Plain Bagel YouTube channel.

While many creators offer well-researched information, those voices are often drowned out by more sensational and potentially harmful content. Coffin has a series of videos dissecting unsafe investing advice on TikTok. “You think about what type of videos pop up in your feed, and which one would do better — a balanced analysis with a nuanced take on a given stock, or a video promising thousands of percentage points of return?” he said. “There’s an incentive, unfortunately, to post hyperbolic content, even if it’s not inherently good advice.”