On social media there is a fine line between supporting financial literacy and giving financial advice to people who do not have sufficient knowledge to tell whether or not it’s any good. That line is so fine that someone who’s just looking for information on how to choose a suitable mortgage or wants to know what ‘short selling’ is could end up being told how to make money without working, avoid tax or make high-risk investments. And young people who are still at school or college or looking for their first job are taken in by the siren songs of easy money and the life of success that some ‘finfluencers’ show them.
During his talk at BBVA’s EduFin Summit 2022, Manuel Ángel Méndez explained there are three types of financial content: entertainment, with fun and useful content; education, which teaches basic ideas and concepts; and investment advice, “which too often comes from self-appointed experts who are uncertified and who should not be giving investment advice at all.” Méndez insisted on the importance of knowing how to tell the difference, since “it’s one thing to educate oneself and quite another to make financial decisions.“
“Ninety percent of ‘finfluencer’ content is entertainment. It’s meant to provide a false sense of expertise,” explained Teknautas’ editor-in-chief. “No one is going to solve your financial quandaries in a 30-second TikTok video. If you really have a need for financial advice, approach a professional. Or at least choose financial influencers that you know are solid.”
Méndez recommended asking yourself several questions to learn to tell the difference.
1. What are their certified qualifications and experience?
Before following investment advice found on social media, you really need to research the background of the person offering the advice. Méndez talked about YouTubers with hundreds of thousands of followers who advise people on how to invest in cryptocurrencies (which later crashed) without being specialists in finance, but rather in digital marketing.
“They’re experts in promoting content but have no financial certification to back up the advice they pour out,” he said.
2. Are they insistent on passive income?
He also said you should be wary of people who insist on ways to earn passive income: the idea that, once you’ve made an initial investment, you earn constant and regular returns without the need for much additional work. These ideas can range from collecting dividends to affiliate marketing or running websites with referral links.
For Méndez, this insistence on passive income is a “red flag,” especially if coupled with the suggestion that you can drop out of college or leave your job to live off passive income alone.
“No one is going to solve your financial quandaries in a 30-second TikTok video.”
3. Do they show off a luxury lifestyle?
It’s common for influencers to flaunt a life of luxury. “If they show you their ‘Lambo’ or their Maserati, that’s a red flag bigger than the car,” Méndez joked.
Motivational tips laced with selfies of the influencer draped over the hood of a high-end vehicle or sipping a cocktail on a trendy rooftop bar overlooking the Dubai skyline or sunbathing on a yacht in Barbados press the aspirational buttons of the audience: usually, “young kids who have not finished school or are unemployed, but want a piece of that lifestyle.”
4. Is popularity their business model?
Popularity is not always directly proportional to reliability. “In fact, sometimes it’s just the opposite.” An influencer’s motives are dubious if their business model depends on advertising income earned by content views or on selling online courses. “That’s the technique many of them are now using,” Méndez explained. “A year ago they were handing out investment advice quite openly, but now they offer online courses instead because that’s not subject to a fine from the CNMV, the securities market regulator.”
Selling tickets to events is also part of their business model. Young people from all over the country gather at these meetings, where they are promised “an income that will bring you the lifestyle you see on your cell phone.”
5. Do they mix in toxic messages with their content?
Méndez warned about a type of ‘finfluencer’ that combines neutral and useful content with anti-establishment, subversive and toxic messages, such as describing tax or pension systems as “garbage” or “a scam.”
With this dangerous combination with other actually useful content, they attract hundreds of thousands of page views in Spain and Latin America.