In addition to celebrities and influencers failing to disclose that they're being paid to tout ... [+]
Earlier this month, the Securities and Exchange Commission (SEC) handed down a $1.26 million fine to social media mega-star Kim Kardashian for her failure to disclose that she was paid to promote crypto tokens via her Instagram account. SEC Chair Gary Gensler said the case should serve as a reminder to celebrities and others that the law requires them to disclose to the public when and how much they are paid to promote such investing advice.
In addition, Gensler added, "We encourage investors to consider an investment's potential risks and opportunities in light of their own financial goals."
Unfortunately, many young people – those in Generation Z – are all too often turning to social media over other sources for investment advice. In addition to celebrities and influencers failing to disclose that they're being paid to tout crypto and other investments, they often also fail to warn of any downside risk.
The question to ask is why is Gen Z heeding such advice on social media?
In many cases, it is simply where they're seeing the claims that they can make money – and many have little experience in investing. According to a new report from MoneyZine.com, Gen Z is five times more likely than their older peers to get financial advice from social media.
"Gen Z uses social media more than any other generation, with multiple reports finding this generation is the most likely to use social platforms for financial advice over more traditional outlets," said Luke Eales, CEO of MoneyZine.com. "Gen Z are a digital-first generation – the first generation to have grown up with instant access to the Internet. For this reason, the bite-sized format of social media likely holds a lot of appeal, enabling them to consume content via their mobile devices and interact with it directly."
Another reason younger people are turning to social media is their general distrust of other media outlets.
"Research found that more than half of Gen Z and millennial respondents described misinformation as a 'major problem,'" Eales explained via an email. "In contrast, social media provides the opportunity to connect to people, rather than faceless media organizations."
That direct connection and the ability to interact with someone personally have huge appeal, and it can even build a great amount of trust and loyalty in what that influencer has to say. Of course, the great downfall of this is that influencers are therefore dealt a huge amount of power and responsibility which they may not always use wisely.
"Many of these social media stars on TikTok and YouTube are luring followers with questionable advice for how to make money fast – with eye-popping screenshots showing dramatic results," warned Susan Schreiner, senior editor/analyst at C4 Trends.
"Financial freedom is the implicit message: 'If I can do it so can you,'" added Schreiner.
Are The Platforms Doing Enough?
Social media companies are already dealing with the spread of misinformation, disinformation, hate speech, and a plethora of other concerns. Experts suggest that the services should be doing more, but are largely failing when it comes to addressing sketchy investment advice.
"Certain types of financial information – such as promoting investment services, cryptocurrency, and other financial services – need to follow certain guidelines issued by the relevant regulatory bodies," said Eales. "However, it is still largely down to consumers to verify the legitimacy of the financial advice they are given on social media."
The fact that the SEC did issue that mega-fine to Kim Kardashian could be a sign the 'wild west' days of investment advice on social media could be coming to an end.
"Over the past few years, regulations have become far more stringent when it comes to advertisements via social media," Eales explained.
"Celebrities and influencers alike can face hefty fines and lawsuits if they do not comply with advertising guidelines on their social media platforms – such as clearly disclosing when a post or story is a paid ad," Eales continued. "That's not to say that celebrities will not cease offering financial advice from paid partnerships, provided they format their posts correctly."
Yet, social media could actually also help spread the word to younger investors to do their due diligence. The stories of SEC crackdowns on celebrities are now going viral on the very platforms where the advice is being offered. That could serve as a warning to Gen Z that TikTok and Instagram aren't the places where they should be seeking advice on their investment strategies.
