Young Investors and Finance Influencers
A gateway to financial success, or not
I’ve been receiving a lot of strange reels recently about financial advice. Part of it is the never-ending grind to apply for summer internships, but another part of it is just random interests in the financial market.
One day, I stumbled upon a post on Instagram about COVID vaccines with a disclaimer at the bottom to seek genuine medical advice. This got me thinking, why can we go around spreading advice on how to use our money, but society is much stricter when it comes to medical advice?
I understand the world is not a simple dichotomy between financial and COVID advice. There are a lot of other information on the internet, but I wanted to address the issue of financial advice. It brings more value than we credit them for, and this article will share some of my opinions and deconstruct some common criticisms.
The first area of interest is: why do people give financial advice? Who are these fin-influencers?
The traditional form of financial information has always been concentrated in a small group of institutions. Unless you had a subscription to the Wall Street Journal, Forbes, Bloomberg, or similar papers, the majority of the information on markets and trade will seem alien to you.
A report by Barclays has indicated that Gen-Zs have been ever more so interested in investing. Nearly half of 18 to 24-year-olds indicated that they hope to invest in the next 2–5 years. Unlike the conventional rich old man with a team of investors to manage their trust fund, who will attend financial conferences and read the driest writing style published by the central bank, the average Gen-Z does not have access to these resources. They do, however, have access to social media and are fluent in navigating around it.
This gap creates a market for fin-influencers that effectively fills the shoes of WSJ. Often times, these are individuals who somewhat enjoy reading through financial market data, but also the voluntary work environment of being a social media content creator. Let’s be clear, these are not people with inherently malicious intent. There are many easier ways to bring chaos into the lives of others rather than spreading inaccurate financial advice.
But there is an intrinsic problem with how these people generate value from social media. The more views they get, the more income they generate. Hence, the metric in which these influencers is evaluated are not necessarily hinged on the quality of their advice. Hence, it is often the fin-influencers get criticised through this mismatch of interests.
The sort of short clips that often get viral on social media is valued by how attention-grabbing they are. More often than not, these are going to be influencers flaunting their luxurious items (sports cars, branded apparel etc.) rather than actual quality financial advice. Yet this often serves to build up their legitimacy, as viewers are deceived to believe that they too, can obtain the same level of financial success if they adhered to that financial advice.
Although understandably, there are fin-influencers who exist who do not flaunt wealth and speak into a microphone with occasional infographics, likely, the type of content they produce would also be packaged in a manner that prioritises short-term attention rather than quality advice.
Yet I don’t believe this is necessarily true. From the perspective of a fin-influencer with some sort of business and marketing strategy, the goal is not to ‘create the next viral video no matter the cost’, but they tend to come in two forms:
They want people to watch their clips on social media, which can later be redirected to their main finance blog or website
They want to create a brand to form a sustainable community to generate a more constant revenue stream
For them to achieve either one of these goals (or sometimes even both), they are incentivised to create genuine financial advice that is backed by sufficient research. It might still be that they utilise techniques such as wealth flaunting or short-term attention seeking, but they have a genuine incentive to ensure that at the end of the day, the advice they provide is going to lead to positive impacts.
Another problem with current critiques on fin-influencers is that it fails to draw the correct comparison. We’re not comparing fin-influencers to investors, we are comparing them to the organisations like WSJ. Even so, criticisms will be on the basis that these fin-influencers do not have access to the resources these institutions have, nor do they have the experience, skills, and education, as compared to the team of Bloomberg analysts.
While I think this is true to a certain extent, I do believe that these fin-influencers can still bring something to the table through their form of niche analysis, but also because they do not suffer the same implicit biases that these analysts have. This is important because traditional forms of financial information have largely been concentrated by the elites. All of them tend to face the same confounding factors and get trapped in their echo chamber. We see this time and time again, most notably when they were all unable to predict the 2008 financial crash.
I do genuinely think this has slightly improved within traditional media, in which they have stated to be more critical and we now hear a diversity of opinions and analyses. But the argument still stands, in which fin-influencers offer a perspective that is untainted by the elite Wall Street circles, acting as a separate voice, as a form of accountability.
The second area of interest is: who are these viewers? And what are they going to do with financial information?
It was correctly brought up by a friend that the impact of fin-influencers is on a specific type of stakeholder. There are two characteristics of these stakeholders:
These are individuals who are interested in investing but did not have the traditional resources to know how to do so. The reason why this is the case is that you are likely only going to end up having fin-influencers on your feed if your Instagram algorithm has found it to be something of interest based on your recent views. But assuming you do not have any investment interest, the existence of fin-influencers would not affect you, as you would skip through the videos.
The age group of these investors are of a significantly younger age group. It seems almost intuitive, that the people on social media are those that grew up with it.
If this is the type of consumers fin-influencers are targeting, I am much more optimistic about our future. If there is an age group in society that is most capable of filtering through fake news and ensuring they do the necessary due diligence, it would be the 18-25s. However, this does not necessarily mean they are immune to the stupid behaviours people often participate in.
What is more likely for an average watcher is that it works as an effective form of gateway into finance. The majority of people who want to invest are intimidated by the complexities of the market, and to a certain extent, they should be. However, a fin-influencer breaking down complex ideas such as dividends, differences between bonds and shares, and the liquidity of a company, are all helpful in tearing down the wall between an average individual and the financial market.
Tearing down such a wall does not mean someone would jump right into investment. Rather, they might be a bit more interested the next time they see a news article on the central bank raising its overnight policy, or a conglomerate’s decision to acquire another company. There tends to be a much healthier and smoother transition for anyone who wants to get to investing.
Realistically, anyone who has invested would have to go through ‘natural barriers’ that act as a method to ensure they have done their due diligence. I would have to download an app or choose a site, and learn how to navigate around it, but will also be bombarded with disclaimers to ensure that I am aware of the consequences of my actions.
Additionally, I think the nature of fin-influencers is that the market for these content creators is quite saturated. While you are scrolling through your Instagram reels, you won’t get the same influencer every day, but rather a range of influencers with diversifying opinions. The diversity of opinions ensures that when you eventually decide on how you want to manage your finances, you know what to Google and look out for.
The final area of interest is to consider the idea of misinformation. Though I am not thoroughly convinced about the concept of a post-truth society, many have raised the concern that online financial advice can easily lead to misinformation.
While I am grateful that we live in a world where people question the validity of the statements they read on the internet, the freedom of information and speech acts as a counterbalance to malicious actors, or holds formal institutions to a certain level of transparency. Let’s consider two situations
Situation A: There is a bad actor
This is not uncommon in any sense. I think the classic case is Charles Ponzi’s Pyramid Scheme (I added a link to Investopedia if people are not aware of what this is), which is still utilised by many other firms on a smaller scale these days. If we had no fin-influencers, and the majority of the knowledge and criticisms on these corporations are in traditional media institutions, the outreach to the public is much lower.
Formal institutions are also beginning to realise this trend. The Central Bank of Malaysia is actively utilising social media platforms to achieve a greater outreach in raising awareness for internet fraud and scams. The ability to penetrate an audience that would have otherwise not known about the dangers of the financial market is what makes this valuable.
Situation B: There is a good actor, but this actor sucks at defending themselves
I think in the recent economic downturn around the world, people are getting more and more concerned about their finances and what will happen to them. Central banks and governments, with all the right intentions (at least most of them are), are using a range of policy instruments to steer the economy back on track.
However, these policy decisions are not always intuitive. Recently, the Bank of England hiked the bank rate to 4%. Now let’s introduce Jacob, who is a fin-influencer with a large audience, but he is not as familiar with macroeconomic policy as he is with financial markets. He proceeds to criticise this policy, saying that this will only worsen the recession. Let’s work under the assumption that he is wrong, and that the central bank is right.
Imagine you are now an average individual, who saw Jacob’s video. You proceed to Google the bank rate and realise it’s true! It is 4% now. If you are the Chief Economist Bank of England, you would want to ensure that you make a statement or publication that makes it clear why you decided to make this policy, and what evaluations you made, in a way which is accessible to the public.
This ensures that institutions like the central bank are justifying their policies, and making them accessible to the public. In some sense, this is a form of accountability measure, in hopes to prevent ‘less-informed’ fin-influencers from making wrong judgements and evaluations of their decisions.
To return to square one, under the principles of these arguments, I do think this fin-influencer trend has brought more benefits than harm. From the lens of a fin-influencer, we can see a strong incentive structure to promote their brand image; the average consumer will view these reels as a gateway into the financial market; and formal institutions will be held to a higher level of accountability.