Social media is a powerful, growing force in the personal finance space. The Gamestop and AMC trading frenzy, in which a large number of Reddit users initiated a short squeeze, revealed to the world that social media can move markets.
At the same time, “finfluencers” on TikTok and other social media platforms are doling out financial advice to the masses, including suggestions about investing money, but just because these individuals have an audience doesn’t necessarily mean they’re experts.
Is social media influencing individual financial choices? FinanceBuzz surveyed 1,200 U.S. adults to better understand how prevalent financial advice is on social media, and how that advice is affecting people's investing decisions.
- More than half — 56% — said social media influencers are not trustworthy for personal finance advice.
- Who do they trust? 32% deemed Elon Musk to be "extremely" or "very" trustworthy for personal finance advice. 33% said the same for Dave Ramsey and 28% for the WallStreetBets subreddit.
- TikTok is the least trusted social media platform for financial advice: Only 10% said TikTok is "extremely trustworthy" and 37% said it's "not trustworthy at all."
- Over half of respondents (52%) said they've used financial advice they viewed on social media and more than one-third (36%) have made an investment because of something they saw on social media.
- Men are nearly twice as likely than women to invest because of social media — 51% of men have made an investment because of something they viewed on social media vs just 26% of women.
- A whopping 45% said they had learned about how to buy Bitcoin via social media. 20% said the same for penny stocks, Dogecoin, day trading, and shorting the market.
Financial advice is hard to avoid on social media
Financial advice is prevalent across social media platforms, whether you’re looking for it or not. Thirty-nine percent of our survey respondents said they see financial advice on social media at least once a week. Whether it’s a TikTok video defining a financial concept or a step-by-step guide on how to invest in Tesla, it can be difficult to ignore the suggestions popping up on our feeds, especially with the layered-in, targeted advertisements for financial products. But it’s important to evaluate each source and verify its credibility before taking any advice.
Who do people trust for financial advice on social media?
Most people know that your average Joe on Instagram isn’t going to be the best source for money tips — 56% said social media influences are not trustworthy for personal finance advice. So who do people trust, if they’re not using financial advisors?
Advice comes from a variety of sources, and people trust that advice to varying degrees. Thirty-two percent deemed Elon Musk to be "extremely" or "very" trustworthy for personal finance advice. Thirty-three percent said the same for Dave Ramsey and 28% for the WallStreetBets subreddit. Other online sources like personal finance websites (36%) and newsletters (33%) scored similarly. Friends (48%) and a financial planner (58%) were the most trusted sources.
Though social media platforms typically do nothing to vet information shared by influencers, people have varying levels of trust in the personal finance advice they see on each platform. TikTok is the least trusted social media platform: Only 10% said TikTok is "extremely trustworthy" and 37% said it's "not trustworthy at all". YouTube, on the other hand, is the most trusted social source of personal finance advice. One in three said YouTube is "extremely" or "very" trustworthy. But no one platform provides greater credibility than the next, and each individual is responsible for vetting the information shared on social media before acting on any piece of financial advice.
Financial advice on social media is not just being viewed — it’s being followed
Though most people know not to blindly follow social media influencers, that hasn’t stopped 52% of respondents from using financial advice they viewed on social media. Despite being the least trusted social media site, 14% said they used financial advice they viewed on TikTok, while 27% said the same for Facebook, 21% for Instagram, and 19% for Twitter.
While there’s nothing inherently wrong with finding financial advice on social media, we encourage readers to thoroughly research the credibility of the source. There’s a difference between a study shared by a major news outlet on social media and a 60-second rundown of an investment strategy from a TikTok influencer. Even if the outcomes of a particular piece of advice sound appealing, don’t dive in head first without vetting the source and getting some background.
Many people have made investment decisions based on advice they’d received from social media as well. More than one-third (36%) of respondents have made an investment because of something they viewed on social media. Men are nearly twice as likely than women to invest because of social media — 51% of men have made an investment because of something they viewed on social media versus just 26% of women. That’s concerning because investment decisions often involve more risk than decisions about saving, spending, and borrowing, which means bad advice in this area can lead to far worse outcomes.
The level of risk can be higher for more advanced investing topics, which many people are being introduced to on social media. Nearly half (45%) of respondents said they learned about Bitcoin via social media. One in five said they've also learned about penny stocks, Dogecoin, day trading, and shorting the market from social media. If you’re going to make an investment decision related to these topics, your research should go beyond social platforms so you have a full understanding of what you’re getting into before you put your money on the line.
Misinformation on social media is seen and believed
Exposure to misinformation on social media is rampant, and some people believe what they see without verifying that it’s actually true, which can be financially damaging. For example:
- One in four respondents heard that day trading is a safe way to make money fast from social media — and believed it. But the U.S. Securities and Exchange Commission (SEC) warns that day trading is a stressful and expensive process that could result in considerable losses. Promises of easy profits should always be viewed as a red flag.
- Nineteen percent heard and believed the claim that the Federal Reserve has multi-million dollar accounts for every American. But the Federal Reserve only serves financial institutions — individuals do not have accounts at the Federal Reserve. Some people who believed this scam tried to make payments with Federal Reserve routing numbers, leaving them to pay penalty fees and even possibly face legal consequences.
- Eighteen percent head and believed that if you start an S corporation, you don’t have to pay taxes. But the shareholders of S corporations are still responsible for paying income taxes and applicable estimated taxes. The corporation may not pay taxes on corporate income, but that’s only because the tax burden has been passed through to the individual shareholders.
- Almost 23% of respondents also believe short selling is a safe way to make money fast because they heard the claim on social media. But this advanced investing strategy can result in losing more than you invested, the SEC warns. Therefore, it should be left to investors who are experienced and comfortable with a high level of risk.
- More than one quarter of respondents said they believed Tesla's stock is a safe buy because it will always go up. But there are no guarantees when it comes to the stock market, and after a year of skyrocketing, Tesla’s stock prices have begun to fall.
So, how do you avoid getting the wrong financial advice? You could tune out from social media altogether, but you’d miss the cat memes and TikTok dances. Instead, check the advice you get against information from government sources like the SEC, the Internal Revenue Service (IRS), and the Consumer Financial Protection Bureau (CFPB). Fortunately, a large share of survey respondents said they double-check if financial advice they’ve seen on social media is trustworthy: 42% said they find another source to verify information while only 20% go with their gut.
It’s easy for an influencer to appear qualified, but just because they sound intelligent and use high-quality visuals doesn’t mean they know what they’re talking about. Unless the influencer you follow is a certified financial planner, it’s smart to double-check other sources before taking their advice.
And if you’re looking for specific advice, it’s a good idea to avoid getting it from a social platform — there are plenty of more reputable sources you can use. Some of the best investment apps come with financial literacy resources you can use to inform yourself, and the SEC has a beginner’s guide to saving and investing as well. Or, if you want to keep learning on an ongoing basis, signing up for a well-established personal finance newsletter could help you accomplish your goals.
FinanceBuzz surveyed 1,200 U.S. adults ages 18 or older, who comprise a nationally representative sample, on March 18, 2021.