‘Finfluencers’ Come Under Fire Amid New Social Media Controversy

social commerce, social media

Social media is very much under the microscope lately due to the controversy surrounding a potential TikTok ban and various cases regarding its regulation in front of the Supreme Court. And with that attention, another issue more central to the payments industry comes to the fore: the use of social media as a source of financial interactions and information, particularly among younger consumers.

“Millennials and Gen Z are increasingly turning to social media for personal finance purposes, including P2P payments, crowdfunding, social commerce and financial education,” reads a recent report from the Kansas City Fed. “Although some intersections between finance and social media may prove beneficial, they also come with risks for consumers. Regulators and financial service providers would be wise to continue following consumer trends among millennials and Gen Z to better understand the direction of the market and to address consumer risks that may arise.”

The Fed report cites many sources to support its case, including a report from PYMNTS on the challenges faced by younger consumers as well as payment solution providers in dealing with the positive and negative influences of social media. That report showed 79% of Millennials and Gen Z seek financial advice on social media, with 62% of Gen Z relying on TikTok. Both the Fed and PYMNTS reports express concern with the misinformation that could result from algorithms as “finfluencers” dole out advice without proper credentials or experience. The Fed report included a qualitative survey that interviewed some of the users of social media as a financial education tool as well as some of the “finfluencers” themselves.

According to the Fed, some of the information available on social media can start younger consumers on the path to financial wellness. But it said that the reliability of those finfluencers can vary widely. It found some that were incentivized to recommend products and services that benefit providers more than the audience they’re advising.

One well-known finfluencer identified as a reliable source is Markia Brown, a certified financial education instructor who focuses on empowering young adults through financial knowledge. Brown claims to have more than 200,000 followers across various social media platforms. Her value proposition: Gen Zers and millennials find her content easy to digest and relatable to their age groups.

“Before social media, the personal finance space was not as inclusive and diverse as now,” Brown said. “The information also wasn’t as easy to come across. Now, communities that were traditionally excluded from conversations about personal finance, like salary negotiations and investing, are not only able to access these conversations but actively participate and learn.”

That’s the plus side. But there’s also the negative side of finfluencers. In the U.S., several organizations have taken aim at them, including a late-January report from the CFA Institute contending that insufficient financial literacy, limited interaction with regulated financial advisers, and a preference for obtaining information through digital platforms drives Gen Zers to engage with finfluencer content.

“Differences in definitions across markets for investment recommendations mean complexity for finfluencers and a grey area for consumers of their content,” the CFA report stated. “Some finfluencers may be unaware that their activities are regulated and need appropriate disclosures. We urge regulators to consider a universal definition of an investment recommendation, and firms and social media platforms should work with finfluencers to ensure compliance with applicable policies.”

Coventry University survey of U.K. consumers aged 18-24 found nearly half of them got financial advice from a social media influencer even though they were aware of the risks involved. Most concerning for the researchers was the finding that around a fifth of young people did not think of “certain credit products as a form of credit and understood it as another form of finance such as a tax or payment.” It found a general lack of awareness around credit products among younger consumers, perhaps due to how those products were marketed or to bad information sources.

But the study also found that social media is an effective environment for sharing financial mistakes and other experiential learning. It found that such experiential learning bolstered younger consumers’ ability to understand the pros and cons of certain credit products and the associated risks of using them.

“Much of this revolved around understanding and/or paying more attention to the APR of products and any other associated costs,” the Coventry report stated. “Similarly, experiential learning provided participants with a real-world grounding in how to manage their finances and how this was often the result of living through the negative consequences of their actions.”