It’s no secret that social media has infiltrated almost every sphere of our lives, so it’s no surprise that it’s now claimed a spot in so many people’s financial lives too. Individuals giving financial advice on social media platforms isn’t new, but the recent rise of #FinTok on TikTok has raised new concerns, shedding light on the dangers of taking financial advice from social media.
What is #FinTok
#FinTok is a hashtag trending on the TikTok social media app. A search on TikTok and any platform for this hashtag will show results of so-called billionaires boasting high returns and handing out financial advice that viewers are eating up. The focus of these videos is usually day trading and the general trend seems to be that quitting your job and trading stocks all day is the way to go. The rise in popularity of TikTok, along with the boom in popularity of trading platforms such as Robinhood in the US and the boredom of sitting at home under lockdown, have culminated into a combination of misinformation and in some cases, price inflation.
The dangers
To begin with, there’s no regulation on the financial advice being handed out on TikTok, nor are there any consequences for these advisors if their advice goes south. These advisors are for the most part unauthorised and have very little experience. On top of that, they have no obligation to establish their expertise or verify their claims. Despite this, their reach is enormous — #FinTok currently has 251 million views on TikTok. 70% of TikTok users are under the age of 24, which means that individuals with little investment experience are diving into the investment world based on the flimsy advice of other youngsters showing off charts and money emojis in a 6-second video.
Legitimate financial advisors have been getting the short end of the stick on platforms such as TikTok, often being labelled as nerds, old, and ridiculed for using traditional investment principles. This heavily influences youngsters to not trust actual financial advisors, which can be detrimental in the future.
Information spreads like wildfire in our digital age, meaning bad financial advice leaves TikTok just as quickly as it enters and spreads to other platforms and into everyday conversations. Some people might be basing their financial decisions on TikTok advisors and not even know it.
This concerns you, even if you don’t use TikTok
The Wall Street Journal, and other publications, have been looking into stocks propelled by social media and the major effects that social media has on the market. An example of this was recently seen with the Gamestop saga where a financial community on Reddit went head to head with a major hedge fund, drastically inflating prices by posting descriptions of future scenarios that would justify a higher value for the company, but were extremely unlikely.
Other examples include the stock price of the Chinese manufacturer of electric vehicles, Nio. Despite never even making a profit, this company had a market cap of more than $90 billion in January 2021, which is more than that of Honda or Ford. The Wall Street Journal pointed out that there were 35 million views of the #nio hashtag on TikTok in November 2020, and that there now exists a very strong correlation between the stock price of Nio and the rise in popularity of it on social media.
A (ring) light at the end of the tunnel
Social media has enormous potential to help young adults improve financial literacy. However, a healthy dose of scepticism is needed since there are currently no restrictions on who can post what. No one can predict the future and there’s no simple rule of investing that will guarantee profits. Any statement of this nature, which is the majority of statements found on apps like TikTok, is a major red flag.
