TikTok has emerged as a dominant force in shaping trends, from viral dance moves to innovative recipes. But beyond its entertainment value, the platform has become a powerful tool for disseminating financial advice.
Find out how TikTok has influenced generations, particularly Generation Z (Gen Z) and how financial influencers gain prominence.
This article will answer the controversial dilemma of the impact on financial literacy and decision-making, which raise both opportunities and concerns.
Who are the fintokers?
Financial influencers on TikTok, often referred to as "FinTokers," have revolutionised the way financial advice is shared. With their short, engaging videos, these influencers simplify complex financial concepts, making them accessible to a younger audience that might otherwise be overwhelmed by traditional financial education.
Their content ranges from basic budgeting tips to advanced investment strategies, often delivered with a charismatic flair that resonates with viewers.
For Gen Z, those born roughly between 1997 and 2012, TikTok has become the go-to platform for everything from fashion to finances. This demographic, known for its digital nativity and preference for concise, engaging content, is particularly susceptible to the influence of these financial advisors. The platform’s algorithm ensures that popular and relevant financial advice reaches users quickly, fostering a culture where financial literacy is just a swipe away.
Gen Z’s early immersion in technology has shaped them into a generation with shorter attention spans, affecting their investment behaviors, including how long they hold onto investments and risk tolerance. Furthermore, it is still too early to say how Gen Z’s financial views will evolve
Is financial content on TikTok beneficial to users?
One of the significant benefits of financial influencers on TikTok is their ability to democratise financial knowledge. Traditional financial education can be inaccessible due to jargon, complexity, and the often high cost of professional advice. TikTok's financial influencers break down these barriers by offering free, easily digestible content. This has the potential to increase financial literacy among young people who might not otherwise have the opportunity to learn about money management.
For instance, influencers often provide practical advice on budgeting, saving, and investing. They can help demystify topics such as credit scores, debt management, and the stock market, which are crucial for young adults starting their financial journeys.
“What’s particularly notable is that wealth-building and financial independence are more prominent for Gen Z than for previous generations.
“However, many schools' lacks primary financial education has left social media as the next best alternative. Trends like TikTok’s ‘loud budgeting’ encourage users to curb overspending and recognise their financial limits, offering crucial guidance when many live paycheck to paycheck,” said Valecha to Gulf News when asked if Gen Z is more affected and influenced by financial advice delivered through social media.
By presenting these concepts in a relatable manner, fintokers empower their audience to make informed decisions, potentially fostering better financial habits from an early age.
“In 2023, a study by the financial industry regulatory authority (FINRA) Investor Education Foundation and the CFA Institute revealed a striking statistic: 37 per cent of Gen Z investors aged 18 and above cited social media influencers as a major factor in their decision to start investing.
“This statistic alone highlights the growing influence of ‘finfluencers’, who use platforms like TikTok, Instagram, and YouTube to share financial advice and education with millions of young followers,” added Valecha.
What are the risks of over-simplified financial advice?
The proliferation of financial influencers also comes with risks. The very simplicity that makes these videos appealing can also lead to misleading or overly simplified advice. Financial markets are complex, and effective financial planning often requires personalised, nuanced guidance that a 60-second video cannot adequately provide.
Some TikTok financial influencers promote get-rich-quick schemes, high-risk investments, or dubious financial products without proper scrutiny or disclaimers. Their content can sometimes blur the lines between genuine advice and promotional material, leading viewers to make hasty financial decisions based on incomplete or biased information.
The brevity of TikTok videos means that important caveats and risks are often omitted. For example, advice on day trading or investing in volatile cryptocurrencies might not fully explain the potential downsides or the level of risk involved, leaving young investors vulnerable to significant financial loss.
“The CFA Institute found that nearly 25 per cent of finfluencer content involves investment promotion, and only 20 per cent of posts include any form of disclosure.
“The viral nature of social media means that both good and bad advice can spread rapidly. Some users might get caught up in trends that promise quick profits, like meme stocks or speculative investments, without fully understanding the risks,” said Valecha.
As financial influencers continue to shape financial discourse on TikTok, it’s crucial for users to develop skills for evaluating the reliability of the information they encounter.
Here are some tips for spotting trustworthy financial advice online:
Check credentials: Look for influencers who have relevant qualifications or experience in finance. While formal qualifications are not always necessary, a background in finance or a proven track record can be a good indicator of credibility.
Wai Ken Wong, regional director of digital wealth management company StashAway talked about checking the credibility of fintokers.
The first thing to look out for, is if these influencers are qualified to give advice or have the necessary experience to make credible commentary on financial markets and products. Anyone can be a content creator, and while they may seem credible and engaging, viewers do not have full picture of whether they are financially successful or have the requisite knowledge to give advice.
“According to a survey conducted by Prolific [market research company], only 31 per cent regularly check whether financial influencers are certified.”
Verify claims: Be skeptical of advice that seems too good to be true or promises guaranteed returns. Legitimate financial advice typically involves risk and uncertainty, and no credible source will promise easy, risk-free gains.
Cross-reference information: Compare the advice you receive with reputable sources, such as established financial news outlets, educational websites, or professional advisors. Consistent, well-supported information across multiple sources is more likely to be reliable.
Look for disclosures: Influencers should disclose any affiliations or sponsorships that might influence their recommendations. Transparency about financial interests can help you assess the objectivity of their advice.
Evaluate engagement: Analyse the feedback and comments from other users. High engagement with thoughtful discussion can indicate that the content is taken seriously and is subject to scrutiny, which can help you gauge its reliability.
The influence of TikTok on financial decisions among Gen Z is profound. With financial influencers offering a blend of education and entertainment, many young people are increasingly turning to TikTok for guidance on managing their finances. While this shift has democratised financial knowledge and made it more accessible, it also necessitates a cautious approach.
“Gen Z's preference for diverse, unfiltered perspectives drives them away from conventional media. Traditional media offers a single voice, whereas social media presents many voices, each offering a different take.
“Given Gen Z’s openness to emerging social trends and more liberal attitudes, it’s no surprise they’re drawn to social media for financial advice. Here, they can explore multiple viewpoints on the same topic, gaining a broader understanding of economic and financial matters,” added Valecha.
Financial influencers have the power to inspire and educate, but they also have a responsibility to provide accurate and responsible advice.
As the digital landscape evolves, both influencers and their audiences must navigate the balance between engaging content and sound financial practices.
“Most investors are better served investing passively for the long term, however that narrative is not often perpetuated by influencers.
“Viewers should also be wary of how easy influencers make it look. To get engagement, influencers may pose with sports cars or film on luxurious sets, giving the illusion that great wealth can be attained easily and in a short timeframe,” added Wong.
TikTok’s role in shaping financial decisions highlights the platform's dual-edged impact. While it has the potential to enhance financial literacy and empower young investors, it also presents risks associated with oversimplified advice.
By developing critical skills to assess the reliability of financial information and being aware of the potential pitfalls, Gen Z can better harness the benefits of FinTok while safeguarding against its risks.
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