Beware of financial advice on social media

If the latest Instagram posts from your poolside friends on the French Riviera have you feeling bad about your financial situation, you’re not alone. According to a recent Bankrate survey.

Frankly, it’s a bit by design; 46% of Gen Zers in Bankrate’s survey admitted to posting things to make themselves more visible to their followers. “And those numbers are probably higher,” says Bankrate analyst Sarah Foster, pointing out that 62% of all survey participants said they believed the people they followed did the same.

For people you know in real life, it can be easy to find out where their social media profiles diverge from reality. But when it comes to influencers, this line can be much harder to spot. In addition, many of them provide financial advice. According to a survey by marketing firm Vericast.

If you follow the financial advice you find on social media out of necessity to follow virtual Joneses, you could find yourself in big trouble, says Brad Klontz, certified financial planner and professor of financial psychology at Creighton University. “Young people are listening to financial advice that may be totally inappropriate,” he says.

Here’s why experts say you’re likely to believe the advice you see on social media, and why you better beware.

Why do you believe influencers: “This is how our brains are wired”

Everyone knows, to some degree, that what you see of other people’s lives online isn’t the reality. “I like to think of social media as a scrapbook full of the best moments in people’s lives,” Foster says. “It can cause you to compare yourself to an unrealistic portrayal of someone else’s life.”

When someone you admire speaks directly to you through the camera, “something really weird happens,” says Klontz: a phenomenon known as “parasocial interaction.”

“If I looked into your eyes and heard you speak and you looked into my eyes, it would create an intimate connection and a deep sense of trust,” he says. “It’s the way our brain is wired. For 99.9% of human history, if you had that gaze, it was intimate. Your brain doesn’t know it’s one-way. It creates a false relationship .”

Combine that sense of confidence with a sense of inadequacy about money, and you can create a situation where people are willing to let go of some of their skepticism about the advice they see online, says Foster.

“You saw that during the stock market phenomenon where people were posting huge returns,” she says. “People may not have stopped to think critically about what they were seeing on social media.

You can’t always trust what you see on social media

Approach any advice you find online with a critical eye, experts say. For one thing, someone who presents themselves as successful or knowledgeable about finance may not be telling you the whole story, says Foster.

“You may have seen everyone taking vacations this summer, but you don’t know if anyone still went into debt to pay,” she says. “Realizing that you don’t know the whole story is really important.”

Financial advice is rarely one-size-fits-all, which is why you won’t find many financial advisors giving advice on social media, Klontz says. “Hardly anyone who rides here is a real pro because they’re too scared,” he says. “You see messages telling you what stocks to buy, but there are reasons why a pro won’t. If I give this advice, I might change my mind tomorrow, so where are you? I don’t know not even if you should buy stocks at all.”

When you see intriguing financial advice on social media, ask yourself if this strategy fits into your financial plan. If someone is whipping up stocks or crypto trades meant to make quick gains, for example, that might not align with your investment plans toward long-term goals, such as retirement.

If an idea still seems to fit your goals, start doing additional research, Klontz says.

“Look at this person giving advice. What is their background? What are their credentials?” he says. “Then execute the strategy or technique by multiple people, including a credentialed expert and someone who doesn’t make money selling that technique.”

Be even more wary of anyone hoping to sell you something by showing off their car collection or showing you crafts aboard a yacht. “It’s an old selling technique. These guys get rich, but not from day-trading. It’s from selling you a course,” Klontz says. “Studies show that true multi-millionaires minimize their wealth.”

“People who put on lavish displays of wealth are trying to manipulate you,” he adds. “Plain and simple.”

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