Schooled or scammed: should Gen-Z take financial advice from TikTok?

When stock markets crashed last year due to the economic shock of Covid-19, many new investors decided to start trading on the stock market. 

The stock trading app Freetrade saw its customer base double in the first four months of 2020, with many new customers being Gen-Z or Millennials. Online investment management service Nutmeg saw a similar spike, with 42 per cent of all new investors on the platform between the ages of 25 and 34, rising nearly 60 per cent year on year. 

The sudden interest in stocks and trading is likely to have been mainly motivated by economics; the interest rates for savings accounts are at rock bottom and for the many young people on furlough, the pandemic provided the time and necessity to start investing. Other reasons were anecdotal; when a pandemic hits and you find yourself living in a reality more akin to science-fiction, investments might provide risk or adrenaline otherwise lacking in lockdown. The spiked interest can be attributed to tech too; the ease and simple user interface of apps like Freetrade, E-toro and Coinbase make investing more accessible. But a less predictable influence comes from the social media app, TikTok. 

The video-sharing app has become the unlikely home of financial advice for Gen-Z. Different streams of themed content on the app are organised within hashtags, if you are looking for videos about money you might search one of the following hashtags; #Stocktok (1.2 billion views), #MoneyTok (7.6 billion views) #FinTok (353.2 million views) or #financialadvice (47.3 million views). Content within the hashtags ranges from explanations of financial terms to advise as to which stocks to buy and financial advice older users wished they had known when they were young. 

The financial pockets of TikTok are, in some ways, the answer to the age-old complaint that school taught us Pythagoras’ Theorem and endless fractions whilst practical money advice was rarely part of the curriculum. For those who find conversations around money intimidating or complicated, the app also provides an easy way to learn and educate; videos are usually around 60 seconds long and often have audio captions and simple visuals. 

The financial literacy that could be gained from these videos gives a generation left feeling helpless about their finances – having lived through two recessions, one pandemic and been priced out of the housing market – a chance to feel in control. TikTok money-influencers, such as money and career expert Tori Dunlap, use the app to share their own experiences of achieving financial security at a young age, pay negotiations and investment and saving hacks. Dunlap has 1.5 million followers.

For a generation berated for its tech-obsession, TikTok exemplifies social media’s potential as a learning tool and power for good. But as with everything on the internet, there’s a dark side too. Just as Instagram is filled with ‘nutritionists’ giving unqualified advice on health and diet, financial ‘experts’ on TikTok often have no proof of any qualifications other than their self-declared wealth. 

This is a particular problem when it comes to investing as it comes with undeniable risk. And with cryptocurrency, which is considered an even riskier investment, poor advice could result in large financial losses. #crypto has 3.3 billion views and #cryptotok has 54.6 million views on the app.

Earlier this year, after users on the digital discussion board Reddit managed to cause Gamestop stocks to rocket, the Financial Conduct Authority (FCA) offered a warning about the influx of “risky” trading tips on social media. The FCA said people should be wary of users promising high-return investments on TikTok.

Social media is primarily designed for entertainment and users post content online to gain a following. The more shocking the video, the more interaction it tends to get, growing audiences based on spectacle. This means much of the financial advice promotes “quick cash” or “making you a millionaire” – clickbait that comes at a cost. 

At the end of 2020, the cryptocurrency trading app Paxful conducted an investigation into TikTok’s financial influencers and found one in seven videos to be misleading; they encouraged users to buy specific assets, implied guaranteed profit and failed to carry disclaimers. They also found that only one in 10 finance influencers referenced any qualifications in their bio or on their website, making it difficult to authenticate their claims. 

Due to the young and impressionable (and therefore vulnerable) TikTok demographic, the knee-jerk reaction is to minimise any financial conversation on the app or warn young people away from it. But creating free and accessible financial education for young people is essential for those without any other means to learn about investments and saving.

Accounts that help define complex financial terms, lay out options for savings accounts or share which trading platforms are easiest to use are invaluable and offer everyone a chance to start investing. But those giving specific guidance as to which stocks to buy, suggest copying investment portfolios from the rich and famous (who have more financial freedom and can take bigger risks) or think cryptocurrency dips can be predicted by astrology, are dangerous, irresponsible and chasing followers.

The onus is on TikTok to crack down on unsubstantiated claims (at the moment finance-related hashtags merely generate a banner encouraging users to “consider doing your own research”), and capitalise on the app’s potential for learning. Until we have proper financial education as part of our school curriculum, social media will always be the first port-of-call for young people wanting to learn more about money. We have to put pressure on Big Tech to safeguard its platforms and facilitate learning.