Should you trust personal finance advice from a 'finfluencer'?

When Yasmin Purnell started blogging in 2017, she planned to share her experiences of becoming a digital nomad. However, the creative-writing graduate and copywriter soon found visitors to her site were more interested in how she afforded her freelance lifestyle.

Noticing the hunger for personal finance advice, UK-based Purnell, now 31, rebranded her website. The Wallet Moth – a blog offering finance and frugal-living advice – was born.

"I shifted into personal finance articles, as my small-but-growing audience expressed more interest in how I had avoided debt in my 20s, how I'd budgeted to have a financial safety net for freelancing and what side-hustles I worked to support being location independent," she says.

It's the human aspect – sharing personal stories and putting a face to the advice – that makes all the difference, she believes. "My content doesn't necessarily offer something that is better than traditional financial advice, but people more and more want to connect with someone they can think of as an online friend, versus a faceless company."

Purnell is among the swelling tide of financial influencers: creators feeding a seemingly insatiable desire for content on spending, saving and investing. Throughout the past few years, the popularity of these 'finfulencers' has exploded, with many amassing followings into the millions. A growing part of the global influencer industry, with an estimated market size of a whopping $104bn (£83bn) as of 2022, some of these finfluencers report earning upwards of six-figures as social media presences.

Their posts can provide welcome insight into the often-opaque world of personal finance – a world young people specifically are finding harder and harder to see into. Yet if trusting money advice from strangers with murky qualifications gives you pause, there's a reason.

A young audience

Millions of people log on every day to consume advice from financial influencers.

Humphrey Yang, a former financial adviser in his 30s, leads the finfluencer pack with more than 50m likes and 3m followers on TikTok, as of this writing. US-based Yang focuses on personal finance advice, with his most popular videos explaining concepts such as retirement accounts and stock prices. In his most-watched video – more than 14 million views – Yang acts out borrowing an iPhone, selling it and then buying the same model for less a year later in order to explain the concept of short selling.

Easily digestible content like Yang's appeals primarily to a young audience, says Radhika Duggal, an adjunct business professor at New York University and the chief marketing officer at fintech company Super.

"With the lack of financial education in schools, Gen Zers are being forced to learn about money on their own," she says. "This is the first economic crisis that younger generations are experiencing, and it's no surprise that they're turning to influencers to ensure that they can make good decisions and weather the current climate."

Connor Campbell, a business finance expert at financial comparison site NerdWallet UK, says successful finfluencers purposely provide an easy entry point into money-related topics. "Financial influencers tend to create content that is appealing to younger generations, specifically using terminology and examples that relate to pop-culture and simplifying financial terms," he says.

One example of a simplified financial concept is "cash-stuffing", a budgeting method that went viral on TikTok in 2022. The cash-stuffing system advocates for dividing physical cash into folders or envelopes for allotted expenses, such as groceries or hobbies, meaning followers are less likely to overspend. It's not a novel concept, but it is new to many young social media users, especially those with limited personal finance exposure.

Content like this is helpful to promote better financial habits among young people, believes Campbell. "By presenting financial tips in an accessible way, they've improved financial literacy, and invoked a newfound interest in being proactive about where people are putting their money, and ways that they can bump their savings."

Purnell agrees, saying that responses from her readers has been "overwhelmingly positive", and that people appreciate her advice on living more frugally. She believes that the relatability of her content, combined with the simplicity of her advice, is a winning formula for young viewers. "I'm just another person looking to save money and perhaps try out a side-hustle or two," she says.

Experts or regular people?

Yet although creators say audiences have been highly receptive to their tips, experts caution some finfluencers may also be leading followers astray – and even, in some cases, taking advantage of them.

Social media can cause people to rush into making uninformed decisions due to a fear of missing out on something that a lot of other people are participating in – Connor Campbell

"Some of these influencers are just regular people with no background in finance," says Campbell. "Social media can cause people to rush into making uninformed decisions due to a fear of missing out on something that a lot of other people are participating in – and when these trends involve real money, this can sometimes become an issue."

Experts have recently warned of surges in self-directed investing based on questionable guidance from financial influencers, arguing some of these social media stars are offering poor advice, either because of their own lack of financial knowledge, or because it is in their interest to post increasingly outlandish content in the interest of gaining followers.

In some cases, organisations have accused personal finance content creators of leveraging the vulnerabilities of a debt-ridden generation to boost their own follower counts. Last year, the UK's Financial Conduct Authority (FCA) warned against online promotions focused on paying off debt, saying that influencers involved in these posts were attracting "vulnerable or indebted customers" to follow "misleading" financial advice.

Offering questionable personal finance advice to capture a large audience has been an issue for decades. Finance mega-stars, many of whom have built profitable careers with their money-management tips, have found themselves in hot water in the past. For instance, Suze Orman, a high-profile TV personality, has come under fire for endorsing questionable financial products, and was even accused of fraud in 2009.

Now, however, social media is exposing a larger, younger and often less-educated audience to often unvetted personal finance advice. There's also the added complication of how influencers make their money – social media stars often endorse products for payment, meaning their advice may not be objective.

In particular, the rise in cryptocurrency adverts have raised flags, after high-profile cases of influencers endorsing new crypto products. The volatility of cryptocurrency means that it can be difficult to predict the market – and yet many social media users have been led to believe that digital currencies are a good investment.

Last year, Kim Kardashian found herself under the microscope when she posted about cryptocurrency Ethereum Max. Although Ethereum saw a rapid rise in 2021, it quickly crashed, losing 97% of its value by January 2022. Investors who had suffered huge losses brought a lawsuit against Kardashian (who currently has more than 364m Instagram followers) and other celebrities who promoted the product, claiming that they had conspired to inflate the value of the tokens.

The case was eventually thrown out, but the judge warned of "celebrities' ability to readily persuade millions of undiscerning followers to buy snake oil with unprecedented ease and reach".

'Boring but highly effective'

James Beckett, 33, launched a content side-hustle after noticing how much bad investment advice was circulating online. The former social media marketer, whose YouTube channel has a small but growing following of several thousand subscribers, says many financial influencers know that engagement comes from get-rich-quick schemes and flaunting their supposed wealth.

"TikTok has reduced our attention spans to fractions of a second, and you need flashy investing content to capture an audience," says Beckett, based in Hertfordshire, UK.

Beckett isn't the only one worried about too-good-to-be-true schemes and investment scams. Finance industry professionals and organisations have also started to speak out about these issues, and the FCA recently proposed a crackdown on finfluencers, arguing their advice can be misleading, and that they often "have little knowledge of what they're promoting".

The FCA recently proposed a crackdown on finfluencers, arguing their advice can be misleading, and that they often "have little knowledge of what they're promoting

However, Beckett believes he and many finfluencers like him also provide what he describes as "boring but highly effective" financial advice. He says these tips are not only lower risk but also more reliable – he discusses the ins and out of concepts including passive investing and index funds – especially for young people without a strong financial-education background or lots of money to burn.

Beckett argues social media finance content can offer an accessible way into managing money, without having to pay the high fees many financial advisors or organisations demand.

"Financial influencers can be problematic, because some of them prey on people's naivety," he says. "But on the flip side, there are a lot of people doing good out there, and they are filling a huge gap left by our education system."

Proceeding with caution

Without a regulatory body, the world of finfluencing remains somewhat murky.

For many, finfluencers have led to accessible financial guidance, filling a gap in financial literacy among young people. And even amid questionable advice or worrying tactics, Campbell argues that, if paired with a discerning attitude and a little bit of scepticism, finfluencers can help put people on the path to responsible money management.

"Personal finances are – as the name suggests – personal to the individual, and everyone's circumstances are different," he says. "It's important to assess whether an influencer's suggestions are relevant to your financial situation."

Beckett adds that although finfluencers might have a bad reputation, they can also offer a route into the confusing, and sometimes intentionally opaque, world of finance and investing. Objective influencers, who don't cash in on partnerships or present their advice as bulletproof, can be a force for good, especially for followers who've never thought about savings or growing wealth.

"Like everything in the world, there are good finfluencers and bad ones," he says. "While the most obnoxious, audacious creators have a larger tendency to go viral, you can still find fantastic personal finance content on social media platforms from people who genuinely want to help. Finfluencers aren't worth shunning entirely."

-bbc