How Finfluencers are teaching millennials and Gen Z about money
There’s been a lot of talk lately about the role of financial influencers, and what they can and cannot do to teach people about money and investing. Namely because the Australian Securities and Investments Commission (ASIC) has recently held a private briefing by which they invited key finfluencers to understand the rules moving forward about giving financial advice.
What is a finfluencer?
Angel Zhong, a senior lecturer in finance at RMIT, says a finfluencer is essentially anyone with a following on social media who talks about finance and investing.
In the same way that a beauty influencer might share their makeup routine, a finfluencer might share their spending for the week or their thoughts on the stock market.
These people are content creators, who are using platforms like TikTok and Instagram to teach their followers about money. This is something I understand very well. Having started in finance journalism over 27 years ago, I have spent a long time creating content for multiple platforms. And I have to say I find finfluencers to be a much-needed resource for financial education that is entertaining and easy to understand.
“These creators have become really, really popular since 2020,” Dr Zhong says. “A lot of young people joined the share market for the first time during COVID and they were hungry for financial knowledge.”
I also understand however, how easy it is for finfluencers to cross the line from education into recommending financial products, and this ultimately is where ASIC draws the line. There has been a long road for the financial advice industry to become a professional and trusted industry. Post a Royal Commission, an industry exodus, and an upgraded education requirement, being a licensed financial adviser takes study, skill and the right licensing requirements. Those requirements are expensive and compliance heavy.
For finfluencers to meet these requirements would be onerous.
“While there are some financial planners who are qualified and licensed who have their own social media following and influence, most finfluencers are speaking from their own knowledge and experience, without any qualification.”
Finfluencers are adept at making messaging fast, and entertaining, which is something the finance industry has failed to do. And perhaps it never will, with the level of compliance required.
Should you listen to advice from finfluencers?
- I believe it’s about reading, researching and understanding rather than blindly following.
- Follow more than one – follow several.
- Learn about categories not products.
- Understand how an index works so you can see how investments move up and down.
- Look at the government web site Moneysmart which will teach you about financial terms and help you use calculators to work out your own situation.
It’s estimated about 435,000 new investors bought stocks for the first time last year. Eighteen per cent were younger than 25, while 49 per cent were between 25 and 39, according to research house Investment Trends.
I would hate to see finfluencers driven out of existence because they failed to understand the difference between financial advice, and financial education. Their ability to communicate so effectively is desperately needed for people searching to understand how to grow their wealth outside of buying a property.
How do finfluencers make money?
“There are 4 broad ways through which a finfluencer with a sizeable following can make money via videos.”
- They make money from ads – the more views they get on YouTube, the more money they make. In fact Google will pay them around 4-5 dollars for every 1000 viewers.
- They can earn through collaborating with brands. This is the thing ASIC is concerned about – any influencing people on investing with particular brands or services is considered advice.
- They can use affiliate partnerships by providing links to companies or to sign up to a service. When they make a commission on each sale they make. While this is ok for beauty and fashion influencers, again it is considered advice to send someone to a specific brand or product.
- Making money from selling their own education, learning and courses is the most viable way for finfluencers to make money moving forward. As long as they are not recommending a product this can work – and I hope that many of them will convert to this model so they can keep going.
While sectors like cryptocurrency are still as yet unregulated, I have no doubt there will be guidelines and regulations to safeguard investors as ASIC and other bodies grapple with the ramifications of this digital currency. But even outside of this, there are many things that can go wrong if you choose to listen to unlicensed financial advice.
“So what could go wrong with listening to advice by finfluencers?”
A lot. If they are talking up a stock or a product, you may be the last in to an inflated price. The price goes up, they sell and you are left holding the bag of a stock that had its price inflated and is worse less or nothing. Selling something that people don’t understand is also going to hurt when it goes wrong. This is why the industry is so regulated to try and protect against this.
Never act on unlicensed advice – rather seek advice about what you are interested in from a licensed professional. The reality is there are not enough advisers in the country to service everyone who needs advice. Finfluencers definitely have a role to play in educating people about growing wealth. So don’t give up on them. Just use them as research. You owe it to yourself to make smart money decisions and give your money the chance to work for you.
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