Gen Z’s and Millennials are getting their financial advice from TikTok and Reddit, and how does it impact their mindset about investing?
Since the Covid-19 pandemic last year, most social media apps like TikTok have blown up in popularity as most of the middle-class population set home trying to help the government contain the virus and got paid while doing it.
TikTok
As of September 2021, TikTok surpassed more than a billion active users. Heaps of wanna-be financial influencers or Finfluencers as they call themselves, on the platform with the audience of mostly teens and young adults with little to no knowledge of investing and financial markets, give investment advice to buy and sell stocks like they’re experts on the subject. Most of their audience believe their advice and act on it. Just because someone has a few thousand followers doesn’t make them an expert on the subject.
The TikTok algorithm promotes the content that generates more clicks. Personal finance happens to be a perfect category. Often focuses on immediate wealth gains and get more clicks in the process.
As a consequence, there is a massive influx of content creators in the space. There are some legitimate and qualified financial advisers. However, there is a lot of financial advice floating on the platform, which is misleading or plain wrong.
A lot of personal finance revolve around day trading and mostly only success stories. Even though this is an investing strategy, one can follow. If someone has never done day trading and sees other making banks doing it. Ametures jump headfirst into day trading without knowing the ins and outs. Without any strategy, they lose most of their money within days. Most professional money managers advise the general public to periodically invest in a low-cost index fund and keep doing what you’re doing until your retirement age.
r/wallstreetbets
On the other hand, there is the subreddit of wallstreetbets. Where many amateurs stock traders post their wins every once in a while. They act like they have figured out the market and give tips on what stock to buy next. Other Redditors fail to consider that when you’re day trading, you’re trading stocks every day multiple times a day. Why would someone post only one screenshot of one transaction in a while? They’re looking for recognition and seeking approval that they’re doing a great job from others on the internet. Some wanna-be stock trader looks at the profit made from that one transaction, and BAM!! Creates trading account just to get hit in the face with disappointment after losing all or most of their money using leverage.
Many spectators fail to consider that the advice you’re getting from these platforms may be true at times, but does that advice align with your financial goal and the risk associated with investing?
Your situation is unique to you
You’re taking advice from a day trader in his early twenties who comes from a well off family with no debt and a bit of money to play around with. In comparison, you might be someone in your forties with limited experience in finance and day trading AND have family, kids, and a mortgage to pay. Your main objective is to pay off the expenses on time, spend time with your kids and invest whatever you have left in your account after all costs and savings with low risk. The trader, in contrast, has none of these responsibilities or kids to look after. He might make or lose money day trading. What you don’t know is that he is definitely making money putting those videos of his trades on TikTok.
In conclusion, be very careful when taking advice on the internet. You and the person giving advice may not share the same goal and risk tolerance. Remember, their main goal is usually to get clicks and views.
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