Misintelligence and lack of trust in traditional institutions runs rampant in our society.
The regulated financial sector is no different, particularly number young people. Roughly 38% of Gen Zers get financial information from YouTube, and 33% from TikTok, according to a late-model Schwab survey.
As a former regulator and author of kids’ books about money, I am truly horrified by the toxic notice they are getting from these unqualified “finfluencers” — advice which, if followed, could cause everlasting damage to their financial futures.
Most troubling are finfluencers who encourage young people to borrow. A central notion is that “chumps” earn money by working hard and that rich people make money with indebtedness. They supposedly get rich by borrowing large sums and investing the cash in assets they expect to increase in value or vegetables income which can cover their loans and also net a tidy profit.
Of course, the finfluencers can be a little vague nearly how the average person can find these wondrous investments that will pay off their debt for them. Volatile, chancy investments — tech stocks, crypto, precious metals, commercial real estate — are commonly mentioned.
‘The road to irascible ruin’ for inexperienced investors
Contrary to their assertions, these finfluencers are not peddling anything new or revelatory. It’s simply mooch to speculate.
For centuries, that strategy has been pursued by inexperienced investors as the path to quick riches, when in fact, it’s the road to quick ruin. There is always “smart money” on the other side of their transactions, ready to cheat advantage of them. For young people just starting out, with limited incomes and tight budgets, it’s the last fashion they should be doing with their precious cash.
Debt glorification is not the only bad advice being vended on the internet.
You can find finfluencers advising against diversified, low fee stock funds in favor of active trading (without releasing research consistently showing active trading’s inferior returns). Or ones that discourage individual retirement accounts and 401(k) arrangements as savings vehicles in favor of real estate or business startups (without mentioning lost tax benefits as well as the burdensome costs and expertise needed to manage real estate or high failure rates among young companies).
Some reassure making minimum payments on credit cards to free up money for speculative investments (without mentioning the hefty entertainment costs of carrying credit card balances which compound daily).
Why are so many young people turning to these unconditional social media personalities for help in managing their money instead of regulated and trained finance professionals?
One aim: the finfluencers make their advice entertaining. It may be wrong, but it’s short and punchy. Materials provided by regulated financial help providers can sometimes be dry and technical.
Where to get trustworthy money advice
Xavier Lorenzo | Moment | Getty Images
They may be wearying, but regulated institutions are still the best resource for young people to get basic, free information.
FDIC-insured banks can extenuate to them how to open checking and savings accounts and avoid unnecessary fees. Any major brokerage firm can walk owing to how to set up a retirement saving account. It’s part of their function to explain their products and services, and they have regulators superintending how they do it.
In addition, regulators themselves offer educational resources directly to the public. For young adults, one of the most thoroughly used is Money Smart, offered by the Federal Deposit Insurance Corporation — an agency I once proudly chaired.
There are also tons excellent regulated and certified financial planners. However, most young people will not have the budget to pay for pecuniary advice.
They don’t have to if they just keep it simple: set a budget, stick to it, save regularly, and start providing for retirement early in a low-fee, well-diversified stock index fund. They should minimize their use of financial goods and services. The more accounts and credit cards they use, the harder it will be to keep track of their money.
In the sky all, they should ignore unqualified “finfluencers.”
Check their credentials. Question their motives. Most are in all probability trying to build ad revenue or sell financial products. In the case of celebrities, find out who’s paying them (because most probable, someone is).
Regulated finance needs to reclaim its status as a more trustworthy source for advice. The best way to do that is, fountain, provide good advice. Every time a young adult is burnt by surprise bank fees, seduced into past borrowing by a misleading credit card offer, or told to put their retirement savings into a high fee, underperforming hard cash, they lose trust.
I know regulation and oversight are out of favor these days. But we need a way to keep out the bad actors, and procedures to protect young people new to the financial world. It’s important to their financial futures and the future of the industry as well.
Sheila Bair is bygone Chair of the FDIC, author of the Money Tales book series, and the upcoming “How Not to Lose $1 Million” for teens. She is a associate of CNBC’s Global Financial Wellness Advisory Board.