Social Media Influencers: Is Their Financial Advice Valid?

In a world of Tik Tok, YouTube, Instagram, and so many other social media sites, people are increasingly getting their financial advice from influencers, especially young investors. Whether you follow influencers or not, it’s very likely that someone close to you does. A recent study from Bankrate researched social media and its impacts on users’ finances. Here are a few interesting stats pulled from their survey:

• 46% of the users surveyed admitted that they intentionally post to make themselves look more successful to their followers.
• 62% of those surveyed believe that the people they follow do the same.
• 64% of parents said that social media contributed to their children having unrealistic expectations about money.

These interesting results show that:

1. What we see on social media is not reality. 
2. Young investors have unrealistic expectations about money. 

Despite knowing that social media influencers might not be all they appear to be online, why do so many trust social media influencers instead of turning to a local wealth management firm?

Why Do We Trust Influencers?

There exists a fiery debate between farmers who use pesticides on their produce and advocates of organic produce. The recent popularity of organic produce has been widely spread by social media influencers who frequently base their argument on the fact that the pesticides that farmers use on produce contain carcinogens. UC Berkeley researchers put this to the test. 

Dr. Bruce N. Ames concluded, “We consume more carcinogens in one cup of coffee than we get from the pesticide residues on all the fruits and vegetables we eat in a year.” The push for organic produce has people eating fewer fruits and vegetables because organic is much more expensive, and consumers fear that they are ingesting harmful chemicals if they consume the cheaper, non-organic options.

As you can imagine, cutting out fruits and vegetables is harmful to one’s health. Lois Swirsky Gold, an expert on the subject matter with over 15 years of research conducted, said, “By targeting pesticide residues as a major problem, we risk making fruits and vegetables more expensive and indirectly increasing cancer risks, especially among the poor.” Ironically, labeling non-organic produce as a cancer risk is actually increasing cancer risk for individuals as vegetables and fruits become too expensive. 

Trusting influencers over subject matter experts seems clearly flawed, especially in hindsight. Why would someone let an individual they follow on social media dictate their beliefs and actions when the said individual is not an expert on the matter? Where is that trust substantiated?

Brad Klontz, a financial psychology professor at Creighton University, attributes this to a phenomenon called “parasocial interaction.” In an article by Ryan Ermey, Klontz said, referring to social media influencers and parasocial interaction, “If I were to gaze into your eyes and hear you talk and you’re looking into my eyes, it creates an intimate connection and a deep sense of trust. It’s the way our brain is wired. For 99.9% of human history, if you had that gaze, it was intimate. Your brain doesn’t know it’s unidirectional. It creates a false relationship.” 

Although you are not physically interacting with a social media influencer, your brain creates the connection as if you were. Although you’ve never met this person, nor know anything about them, you trust them because you have watched videos where your eyes meet, and you hear their voice.

In the case of organic food, how could you trust farmers or scientists on the matter? After all, you’ve never seen their faces nor heard their voices. Sure, you can read their research and study their published and peer-reviewed journals, but your brain isn’t wired to trust words. It’s wired to trust people.

Influencers and Financial Advice

This is no different when it comes to influencers who give financial advice. You have probably seen a video where an influencer showed their amazing trips, expensive cars, giant mansions, and other flashes of lavish living. They might share investment advice, quick tips on how they “made it,” etc. Before taking their advice as fact, consider some red flags.

1. Blanket Recommendations: Everyone’s financial situation is different, and cookie-cutter financial recommendations will not work for everyone.
2. Does it seem too easy? Although we like to believe it, there is no free lunch out there. If it seems too easy, it’s probably because it’s illegitimate.
3. Showboating: If an influencer flashes their extravagant lifestyle, they are usually trying to use emotion to sell you something. Remember that you have no idea what their actual financial situation is. They could be in deep debt. The video could be completely fraudulent. Generally speaking, actual wealthy people downplay their wealth rather than flaunt it.
4. Does this person have any credentials? Are they trained in finance? What is their background? Do they have experience in making financial recommendations?

It can also be helpful to remember that social media influencers make money off how many followers they have and how many views their videos get. Understand that their content is aimed at bringing on new followers, retaining followers, and generating views rather than giving you financial advice that is tailored to your unique situation.

Questions to Ask Yourself When Considering an Investment

Additionally, it’s critical to ask yourself questions like the following when considering an investment:

1. What’s the goal? When an investment is not associated with a goal, it is widely considered speculation.
2. What is the expected return? Having an idea of the expected return can help you determine if the investment is in your best interest.
3. What are the risks associated with this investment? Investments carry different types and varying levels of risk. Understanding the associated risks is crucial.
4. What are the costs associated with this investment? Riskier assets, for example, are often associated with higher short-term trading volumes, which means higher taxes. Also, consider the opportunity costs of investing in the proposed investment.

Answering questions like these can be the baseline of the understanding you need to make financial decisions that are in your best interest.

Challenge Your Trust With Influencers

Being in the “information age” is a double-edged sword. We have access to more information than any other generation in the history of the world. In less than a second, we can have the answer to almost any question without needing to lift a finger. However, we face a lifetime battle of finding trusted sources of information. Simple exercises, like running through the questions above, can help you challenge the false trust you have in social media influencers. 

When it comes to your life savings and building wealth, you deserve trust that is genuine. When it comes to your life savings and building wealth, you can’t afford to place your trust in popularity rather than expertise.

Turn to TrueNorth Wealth instead! If you want to maximize your wealth, we offer financial planning in Boise, ID, and various locations throughout Utah. We’re here to help you exceed your financial goals and live a happy, fulfilling life.