Should you trust TikTok, YouTube finfluencers?

You've probably read about finfluencers — so-called financial influencers who post financial lessons and money advice on social media. They've been on the rise over the past couple of years thanks to platforms such as Instagram, TikTok and YouTube.

A global pandemic forcing us to increase screen time, plus a surge of retail investing and the frenzy around meme stocks, also helped catapult finfluencers into digital fame.  

It is easy to be dismissive of such a phenomenon. After all, it is (mostly) young people giving financial advice in short, catchy snippets on social media. But the rise of the finfluencer goes hand in hand with the democratisation of finance. Making high quality financial information more accessible is a good thing. The world of personal finance has long been mostly targeted toward the middle class or already wealthy.  

The catch, though, is that a lot of money advice out there is lacking in substance or even downright predatory.

Take this from someone who is often branded as a financial influencer — a label I personally detest — for writing personal-finance books and offering advice (based on extensive research and expert interviews) via social media. There are plenty of influencers offering well-motivated and quality advice. However, the space is also rife with people looking to make a quick buck.  

It is critical for consumers — anyone scrolling on social media — to be discerning. Finfluencer work is marketing and well-crafted marketing at that. It helps to understand the different strategies influencers use to make money.

For example, there are brand partnerships in which you're basically creating commercials for financial services companies to promote products. These posts are required to be disclosed with language like "I've teamed up with" and include #ad and #partner in captions and on photos.

This is a legitimate way for creators to make a living (full disclosure: I've made money through such partnerships), but the key is being aware of these relationships.

Another way to monetise is through selling your own content, from courses, worksheets and books to t-shirts, hats and tote bags. And there are content arrangements with the social media platforms themselves if your following grows large enough. None of this is problematic outright. But issues can arise due to a lack of transparency, regulation and credentials.

Bad financial advice is nothing new — there have long been grifters and scammers working shoulder-to-shoulder with ethical financial advisers. But it is now everywhere and it is increasingly up to us to do the due diligence and vet whom we trust. This is particularly important when it comes to investing. Someone who doesn't know you and has no idea about your specific financial situation and goals cannot conclusively say where you should put your money.

Anytime you come across financial advice online — look out for those tantalising promises to get you rich quick or retire by 35 — take a moment to consider a few things.

First, do an audit of their social media feed to see what the person is promoting. Seeing well-curated ads for products like payday loans should be a red flag. 

You should also scroll back far enough to see their collaborations. Partnerships with other finfluencers and actual experts can give you some insight into a person's strategy and beliefs around their work. You can see who they've worked with, what type of companies they deem as credible and what kind of advice they've historically given their followers. See sketchy-looking companies that the person probably doesn't use themselves? Red flag. 

Then ask yourself: Do you understand how this person earns a living? Is it clear when a brand partnership is occurring and does the influencer share their litmus test for taking on a partner? What gives them the credentials to be giving you the advice?

Plenty of people use titles like "investing expert," but what makes them an expert? Is it just that they do their own investing? Or have they formerly worked as a trader and have a Series 7, Series 63 and/or Series 65? Are they a certified financial planner or working as a financial journalist? 

There is also a range of advice being given by finfluencers. Explaining how the stock market works or strategies used to invest is different from explicitly telling you which stocks to buy or what crypto and NFTs to purchase. Educating you and selling to you are two different propositions. The trick is to always question whether selling is being dressed up as educating.

In many ways, greater access to financial information and having a wider range of people who can communicate such information are good things. There's now a greater chance you can get advice from someone who has had similar life experiences to you and can therefore better relate to how you and your family handle money.

The rise of influencers has also made talk of money less taboo. Having healthy, productive conversations around money can result in people learning important life skills such as negotiating, boundary-setting, saving and investing.  

So, yes, there is a lot of quality advice to be found. You just have to weed out those looking to cash in on a trend.

Erin Lowry is the author of "Broke Millennial," "Broke Millennial Takes On Investing" and "Broke Millennial Talks Money: Stories, Scripts and Advice to Navigate Awkward Financial Conversations."

Disclaimer: This article first appeared on Bloomberg and is published by special syndication arrangement.