Dubai: Being active and intentional with money helps you make the most of it. But for many, money is confusing to manage and uncomfortable to discuss.
Scrolling through other people's questions, problems and advice can make the topic feel more normal and less scary. This is when it can be hard to look away from the constant stream of financial success stories and tips on social media platforms.
It’s often content that promises more immediate wealth that gets more clicks. As a result, the platforms are now overflowing with creators making market prognoses and encouraging you to buy certain stocks or cryptocurrencies so you can make a lot of money like they have.
Don’t expect to be able to copy their results, experts say. Research from the University of Toronto in Canada has found that the average day trader loses money because they tend to buy and sell too late, and don’t necessarily do either for much sound reason.
Social media platforms are also witnessing an increasing number of people using these channels as avenues to exchange market trading tips on which stock or cryptocurrency has the most potential to grow and hence more investment worthy. This is what led to the current meme-stock trend.
The logic for making use of recommendations from social media influencers on any platform is straightforward, financial planners opine. The reasoning is seeing peers move on with their finances may encourage you to do the same, and this can get the wheels turning.
Experts also recommend such platforms for exchanging ideas, like brainstorming passive-income opportunities. With this strategy, people can choose what resonates with them.
Personal finance video tips are now highly popular
Media platforms are now also comprised of experts who make videos discussing how to get out of credit card debt, explaining the difference between different investment products, and encouraging young people to start investing for retirement.
The Wall Street Journal recently reported that many financial professionals — and several users and video makers themselves — encourage caution when getting advice from this medium. It can be difficult to discern which users have actual financial backgrounds.
Moreover, billionaire influencers such as Elon Musk and Mark Cuban are also tweeting about investments that can skyrocket and lead retail investors to buy at the highs.
Can financial advice be published on video platforms?
When it comes to investment advice, a little known fact is that paid video uploaders are required to mandatorily say that the content is not a trading advice at the end of each of their videos when posting them on any public platform, according to telecom regulators in numerous key economies.
Since it’s impossible for a video uploader to investigate the investment portfolio of each viewer and does not give the personalised recommendation, it could not be treated legally as a ‘trading’ or ‘financial’ advice in most countries. Even if the uploader holds the ‘license’, this disclaimer is needed to be included, research shows.
In Australia (as in many other countries), you require a certain type of AFSL - Australian Financial Services License - to give financial advice. Most people who run trading websites or video channels, etc do not have an AFSL and want to clearly highlight that they are not offering any form of advice. It is a legal protection.
This is obligatory even for a video uploader working with some brokerage or platform as an affiliate, due to what is called an ‘affiliate agreement’. (A breach of contract forces the uploader or video owner to not get paid for the members who accessed their video through the affiliate link.)
Although most video-sharing public platforms are recommended to receive basic knowledge or understand how to solve some trading-related problems, the platforms notifies via publicly-available information on their websites that they are not a platform that can promote market tradable information, as a mandatory disclaimer.
A social media-fuelled trading movement on the rise
Multiple analysts are of the opinion that buying stocks based on fundamental characteristics such as cash flow, management and return on investment has been taking a backseat, and is instead being replaced by a social media-fuelled trading movement.
What’s happening on popular such video-sharing platforms is hardly a new phenomenon. Day trading (a form of speculation in which a trader buys and sells a financial product within the same trading day on the basis of a certain piece of news) has been around since the 1970s, and scams have been around forever.
People tend to evangelise risky investments during a rising stock market, when it’s far easier to make money because the stock market is going up overall. During these times — and we’re in one now — it’s also far easier to position oneself as a financial genius, when really, everyone else is making money, too.
Financial advisors also advise that while it's not so concerning to consume general budgeting advice, investing tips found on such platforms are bit murkier and risky for vulnerable viewers to follow without further research.
Verdict: To act on freely-available advise or to not to?
Videos of unverified claims that happen to go viral might not be the best (and certainly shouldn’t be the only) source of one’s information.
As for the posts and replies, the quality of advice is a mixed bag. According to a study of financial planners who frequently browse and reply to posts or videos on such forums, the consensus is that not all views are professional.
“Some posters must be professionals because their tips are spot on. But there's also a lot of advice out there that's better off ignored," explained a US-based certified financial planner Jeff Ledford, according to the above-mentioned research.
Other financial planners has also seen verified advice on such platforms, particularly when it comes to basics like managing debt and cash flow, but there has also been misinformation, about taxes, for example, the research further indicated.
So it's hard to tell which advice is worth following, and which is not. In fact, all these platforms can be loosely categorised as an unfiltered data dump with a lot of unverified information.
What works for one, won't necessarily work for you
Aim to use these platforms more as a source of motivation or mere information than concrete advice to act upon or put your hard-earned money in. In addition to the fact that much of the channel's advice is unverified, planners point out that personal finances are in fact personal.
What financially works for one social media influencer or video uploader won't necessarily work for you, given that your circumstances and experiences are different. You're responsible for your own decisions and to do your own research.
If you're considering taking advice from either of these platforms, first try to verify it elsewhere. Start with a Google search and look for web pages that cite the source of the information or advice.
For example, the page may describe a study supporting the advice, show a calculation, or quote an expert or organisation.
Admittedly, a social media platform’s ability to take a user’s video and show it to millions of people in a matter of hours or days is unmatched.
However, when it comes to personal finance advice, what’s happening as a result is users end up getting advice not from trusted sources, but from those who have ostensibly made money off buying and selling a certain stock or product – which may or may not work for you and hence, is risky advice to adapt.