Social media channels can make financial topics more accessible. When consuming such content, however, it is important to maintain critical judgement. Not all articles are well-founded and not all advice can be applied to your own situation.
For many people today, social media is not only a place for dialogue and entertainment but also a rapid source of information on financial topics. On Instagram, YouTube, TikTok and LinkedIn, “finfluencers” explain topics such as investing, pensions and asset accumulation in brief, easy-to-understand terms. Younger generations in particular use social media to learn about stock market trends, investment opportunities and financial strategies. Studies show that such platforms have become important sources of information about money for young adults.
According to Swiss Life’s “Swiss Pension Panorama”, 13% of 18 to 24-year-olds and 15% of 25 to 34-year-olds seek advice from finfluencers, whereas older groups do so rarely or not at all. Conversely, the older the survey respondents, the more likely they are to name bank advisers as their source of information. The situation is similar in Germany: according to survey data, 21% of 18 to 34-year-olds mainly use social media to find out about financial topics, compared to just 5% of older age groups. Moreover, 27% of under-35s say that they use “finfluencers” as an important source of information (among older people this figure is 8%). In France, this effect is even more pronounced: an OECD study commissioned by the French financial markets authority AMF shows that social media is the most important source of information on financial topics for 41% of 18 to 24-year-olds.
New approaches to financial education
The platforms’ unique way of preparing content makes complex financial topics more accessible. Much of the content is depicted visually and explained in an easily understandable way, requiring little prior knowledge. Topics covered range from budgeting tips and long-term asset accumulation to sustainable investments and new digital investment forms. What are the advantages? Users ask questions in the comments and start discussions or share their personal experiences. This, in turn, helps others to categorise the social media content. For many users, this lowers the inhibition threshold and can provide a good opportunity to study the topic more closely for the first time.
Where caution is advised
Social media often follows the same principle. Content is exaggerated, emotionalised or portrayed as a great success in order to gain more attention. As a result, posts about high returns or quick profits often go viral, while risks and costs are disregarded. In some cases, questionable or poorly regulated investment opportunities are promoted, with very little mention of their risks and background. This can create false expectations and give the impression that certain financial decisions make sense for everyone. In reality, however, they depend heavily each person’s personal situation, goals, time horizon and risk appetite – aspects that can hardly be differentiated in short posts.
Example: GameStop hype
A well-known example is the GameStop episode, in which success stories disseminated on social media were not a true reflection of the actual risks. During the hype that built up around GameStop’s stock in early 2021, numerous posts about supposedly “safe” and rapid gains spread on platforms such as Reddit and TikTok. Many users showed screenshots of high profits and presented the stock as a unique opportunity.
What went unmentioned:
- the stock’s extreme volatility
- that many late buyers suffered heavy losses when prices fell again
- that early investors or professional traders had already realised their profits
- the speculative nature of the investment (no sustained increase in enterprise value)
Many private investors only entered at the peak and lost substantial amounts of money within a short time when prices plummeted.
Studies and information from supervisory authorities paint a mixed picture. Social media can facilitate access to financial topics, but it also comes with risks. Content can be interest-driven or misleading, for example through highly simplified presentations or hidden advertising or because recommendations do not fit the reader’s individual situation. In addition, financial literacy can vary greatly by country and population group. FINMA, for example, maintains a warning list of potentially unauthorised providers and recommends that investors read up thoroughly before investing.
Checklist: 10 points to check when using social media for investment information
- Check the profile and expertise: Who is the author of the content? Which recognisable qualifications or experience do they have? (see FINMA)
- Critically examine sources: What are the statements based on? Are there comprehensible data, studies or serious references? (see ESMA)
- Do not equate reach with quality: Likes, comments and follower numbers are not a reliable indicator of substance. (see FCA)
- Do not make decisions under pressure: Investment decisions should be made without pressure. Requests asking you to do something straight away are a warning sign. (see FCA)
- Consider the overall context: Aspects such as return, risk, costs, term, liquidity and possible negative (worst-case) scenarios should be taken into account when making decisions. (see ESMA)
- Consider several perspectives: Compare statements with other sources and opinions rather than assessing them in isolation. (see FCA)
- Question interests and incentives: Are financial motives at play (personalised referral links, sponsorships, commissions)? Are these disclosed transparently? (see ESMA)
- Remain sceptical about big promises: Very high returns with low risks are generally unrealistic. (see FCA)
- Be critical about changes of messenger: Invitations to move investment recommendations into private chats (e.g. WhatsApp/Telegram) should be judged with particular caution. (see FCA)
- Stay up to date on the latest scams: Familiarise yourself with typical patterns (e.g. fake profiles, falsified evidence, exertion of pressure, “exclusive” groups). (see FINMA)
