Op-Ed

Some 15 or 20 years ago, if you were looking to get into finance, you would read the Wall Street Journal, pay attention to Henry Kaufman's analyses and closely follow both Ray Dalio's speeches and Warren Buffet's masterclasses. These traditional financial gurus do continue to have very large audiences, but now they are rivaled by tech-savvy newcomers who understand the power of social media.

If you're over 35, you probably haven't heard of the "finfluencers." They include Alessio Rastani, Robert Breedlove, Dan de Chartguys and Erik Crown. They are active on YouTube, Twitter, Instagram and TikTok. Finfluencers use their platforms to help you manage your personal finances and sometimes even teach you investing techniques. They usually specialize in either technical analysis, the stock market or crypto-assets, and it is safe to say their audiences are only growing.

The most recent Audirep survey from the Bank of France, dated July 2020, highlighted a paradox: The majority of French people (52%) are interested in financial news and topics, but many face significant gaps in their financial education. In other words, they have not mastered basic financial knowledge.

The finfluencers are often talented, with many being self-taught, sometimes not having had any previous experience in finance at all.

Thus, the rise of the finfluencers is theoretically good news. They are helping to democratize personal finance issues and are making complex topics — such as blockchain and crypto-assets — accessible to all. While major financial institutions struggle to reach out to 18-35 year olds, finfluencers have succeeded in capturing their attention by offering perfectly tailored content in the form of short, dynamic videos and other posts that avoids financial jargon and reaches them via the channels they use most: social media.

A study released by Lending Tree in January 2021 showed that 41% of Americans in Generation Z (those born after 1995) reported using TikTok to learn about financial information during December 2020. The implication of these findings demonstrates that young people prefer social media over traditional avenues. This is likely because they have already mastered the technology and know-how to find people that will explain things to them simply and without judgment.

The finfluencers are often talented, with many being self-taught, sometimes not having had any previous experience in finance at all. They are also very good at monetizing their audience. However, not all finfluencers are reliable. Some fail to warn their audiences about the inherent dangers involved with financial investments. One of these risks is related to leverage, which functions similarly to credit and allows you to invest more than you have in the stock market, but can also lead to massive losses in the event of a market downturn.

Finfluencer Carmen Perez runs the personal finance blog makerealcents.com — Photo: makerealcents via Instagram

This is where we reach the limits of democratizing financial education via social media platforms, which exist outside of any regulation. You cannot simply wake up and decide to be a financial investment advisor. Reality TV star Nabilla Benattia-Vergara is a perfect example of this: She was forced to pay a 20,000-euro fine for promoting stock market services on Snapchat without mentioning that she was paid for the advertisement.

It is important to remember that in France, financial investment advising is a strictly regulated profession, as evidenced by the rules related to insurance coverage, membership in professional associations, registration with the Organization for the Unique Registry of Insurance, Banking and Finance Intermediaries, etc. The field follows several rules connected to good conduct and ethics.

We should be pleased to see more and more young people becoming interested in their personal finances, and social media is a good starting point for financial education. But, on the other hand, there needs to be more oversight of finfluencer activity.

Social media sites have started to take more responsibility by issuing warnings, sometimes going so far as to ban some unscrupulous finfluencers and updating their terms of service. For instance, TikTok recently updated its regulations to prohibit users from advertising financial services on its platform, and Google announced that it will take new steps in the fall. In France, it is becoming more urgent that the Financial Market Authority (Autorité des marchés financiers) takes a closer look at the subject.

The financial brands that will succeed in capturing a long-term young audience will be those that succeed in getting onto these platforms.

Moreover, financial institutions, the old-school interlocutors when it comes to savings, should also adapt their content and messages to address young people. This involves becoming active on social media, including potentially forming partnerships with serious players in the online finance field and modifying their content so that it corresponds with Gen Z's expectations.

The key takeaway is that the approach that once worked for 35-50 year olds does not work for young people, as they do not have the same relationship with social media, nor the same life trajectories, assets or income expectations. In addition, financial institutions must deal with and offer support to young people, as they have experienced more generalized financial insecurity and lack of employment opportunities.

In recent years, all the major banks have adapted their offerings to young people by avoiding thinking of them solely as students who need to only be addressed at the beginning and end of the school year. They have come to understand that their profile is more diverse, whether they be young professionals, interns, students or unemployed.

According to a study conducted by Diplomeo, 73% of 16-25 year olds get their information from "social networks," with Instagram, Twitter and Facebook leading the way. This is why the financial brands that will succeed in capturing a long-term young audience will be those that succeed in getting onto these platforms, as more and more young people will exclusively use them to plan their financial futures.